How Automation Helps Servicers Capitalize on MSR Transfers

0 0

Driven by several economic factors, lenders who held mortgage servicing rights (MSR) in their portfolio in 2018 saw more profitability than those without, according to recent comments made by the MBA’s Vice President of Industry Analysis, Marina Walsh. In fact, servicing income more than tripled year-over-year, increasing from $64 per loan in 2017 to $203 in 2018 loan.[1] That’s the good news.

A bit of bad news is despite the popularity for these assets, owning MSRs requires a significant capital investment for secondary market participants. This is partially driven by the high cost of servicing and default risk. Furthermore, research from the Mortgage Bankers Association shows a three-fold increase in the cost of servicing since 2008 for both defaulted and performing loans.

As such, the need for cost saving and efficiency related to MSRs is key to profitability and can start with the initial acquisition.

The challenge, and cost, related to MSR acquisition is not the financial transaction itself, it’s the physical file delivery. It’s a bear.  There are countless document types and delivery formats, compounded by file sizes and the sheer volume.  When a new opportunity arises, buyers looking to quickly acquire new rights without automation are left looking for a labor arbitrage to help scale.  Without technology these servicers can’t execute in a timely manner with the accuracy and efficiency necessary to maximize profitability.

Buyers are tied down by manual processes for mapping seller data into their servicing system, which limits their bandwidth to entertain purchasing from additional sellers. They also don’t have the right tools to evaluate seller delivery and defect patterns which could help them improve their overall profitability, speed and confidence for future acquisitions. Manual procedures leave pre-purchase reviews and funding status shrouded in mystery.

Then there are the seller challenges.  Lenders looking to sell their servicing rights are often limited to working with a finite group of buyers because they don’t have the internal resources to prepare loan files for the unique stacking order, document naming and data specifications each unique buyer requires.

At the end of it all the borrowers can also suffer because of incorrect loan file data, missing documents and other errors that may result during the transfer from the seller’s system to the buyer’s. Any investments that servicers have made in customer experience management can become neutralized because of issues encountered when on-boarding loans to the servicing system, creating a frustration point for borrowers.

Alternatively, automated verification and validation of loan file data and customizable rules defined by the buyer can help normalize this highly variable, manual process. Technology can:

• Classify and stack droves of seller documents without manual intervention
• Extract the data deemed important, compare it against sources and
• Deliver an accurately processed loan file back to the buyer ready to board into the servicing system.

The result is timesaving efficiency that helps servicers (buyers) confidently acquire new servicing rights at scale.  Lenders (sellers) are also afforded the time to expand their MSR relationships with other buyers when they use technology automation to prepare data and documents prior to shipping.

Furthermore, with purified data and exception management the output of an automated process, buyers get a better view of the quality being delivered by sellers and improve the efficiency of their boarding process.  A standardized delivery method for loan packages from many disparate sellers allows for a tighter workflow and consistent evaluation of seller compliance with the buyer’s acquisition standards. Reconciliation reports can clearly and easily identify information for each seller on when loan file packages were delivered, track funding dates and evaluate patterns related to delivery performance. Loan level detail can support conversations between buyer and seller about recurring defects and suggestions for improving quality going forward.

Finally, MSR automation helps preserve the borrower experience. With complete and accurate data absorbed into the servicing system more quickly, complaints can be avoided, as can future transfer and loss mitigation issues.

The time is now to invest in technology automation for MSR acquisition. Big name market players like Freddie Mac are already making these investments and are at the forefront of deploying technology to make the MSR acquisition process better for both buyers and sellers with their new Freddie Automated Servicing Transfer^SM (FAST^SM) program.  As well, buyers and sellers can build better direct relationships by investing in technology that can lower their costs and raise quality for those transactions. Seasoned solutions providers, like LoanLogics®, are out there to help support the change of process.

[1] http://www.mortgagenewsdaily.com/04182019_mba_mortgage_profits.asp

For information on how LoanLogics teamed with Freddie Mac to technology-enable their FAST^SM program and standardize the process for buyers and sellers, driving more efficiency and cost reduction for MSR acquisition, tune into this podcast.

About the Author

Craig Riddell

As Executive Vice President, Chief Business Officer, Craig Riddell is responsible for establishing and developing ongoing relationships with LoanLogics' largest enterprise clientele, as well as leading the LoanLogics' Sales, Marketing and Account Management functions. He has been and continues to be a trusted leader involved the strategic growth of LoanLogics.