PERSON OF THE WEEK: David Vida is president of mortgage services at LenderLive Network Inc., a domestic-based, end-to-end mortgage services provider. MortgageOrb recently interviewed Vida to learn more about trends in mortgage servicing outsourcing as well as the company's recent acquisition of Walz Group.
Q: When it comes to outsourced services in loan servicing, what trends are you seeing lately? It seems that while some lenders are bringing their servicing in-house, others are switching to outsourced services. Do you find that the trend seesaws?
Vida: I don't know how much it seesaws, but there's certainly an inflection point based on the capacity or the size of any institution. A question that comes up all the time in the industry is this: How many loans do you need to be servicing in order to justify doing it in house? Eighteen months ago, I would have said 20,000 to 25,000 loans. In the last six to nine months, that threshold number has gone up to about 50,000. However, at the California Mortgage Bankers Association's (MBA) 20th Annual Western States Loan Servicing Conference in San Diego, some of the people I spoke to said that, in order to really justify servicing loans in house, that number was north of 100,000.
That said, the biggest trend we're seeing is more and more lenders turning to subservicing, and there are several reasons for that. First, costs are rising. According to the MBA's Servicing and Operations Study and Forum, prior to the credit crisis, it typically costs an average of $55 a year, or $4.58 a month, to service a loan. Today, experts estimate that cost is $208 a year, or $17.33 a month. Alternatively, you can contract with a subservicer to do this for between $12 and $15 per loan, per month.
Second, compliance is getting much more complex. Rules and regulations that did not exist pre-crisis, like the Consumer Financial Protection Bureau's (CFPB) mortgage servicing rules and the Office of the Comptroller of the Currency's (OCC) Consent Order, Unfair, Deceptive, or Abusive Acts and Practices (UDAAP), etc., now govern how we service a loan today. So small-to-midsize shops servicing loans in-house don't necessarily have a dedicated headcount to manage risk and compliance. And finally, servicing is complicated and generally not the core competency of an originator. Most would rather outsource those servicing responsibilities than add more staff.
Q: Are there any new pieces of the loan servicing process that are being increasingly outsourced?
Vida: Not necessarily. There's still some demand for component servicing (i.e., borrower contacts, loss mitigation, escrow management, etc.), but servicing loans is a bit of an all-or-nothing proposition because of the different compliance guidelines that need to be followed. If it's broken up into different pieces, there's risk that data and communication with the borrower can fall between the cracks. More importantly, if multiple parties are calling, it can be confusing to the borrower and send them mixed messages.
Q: As you know, new regulations and the threat of lawsuits and/or buybacks means servicers must now place a super-strong emphasis on data accuracy. All data and documents must be accurately handed off between systems and a detailed audit trail must be maintained for each and every transaction. Would you say that most servicers are now ‘caught up’ in terms of upgrading their systems – i.e. will the days of ‘stare and compare’ ever go away? Do you think servicers could still learn more from their lender brethren, who have been developing and using technology to ensure data accuracy and loan quality for years now?
Vida: Though it is compliant, most servicing technology today is still green screen, making it very difficult to extract or manipulate data. So, when it comes to technology, servicers could take a cue from not only their lender brethren, but also disruptive tech companies that have used innovation and technology to create new, more collaborative relationships with customers, at the expense of traditional players. (Think: taxis and Uber, music and iTunes, lodging and AirBNB, etc.)
At LenderLive, we think of ourselves as a disruptive subservicer. First, we're using off-the-shelf technology with proprietary applications to drive down costs, and we create collaborative relationships with our clients. At the same time, this is giving our clients greater transparency and control over servicing decisions and providing significantly more data and actionable reports.
I'm not sure the days of ‘stare and compare’ will ever truly go away. Automation via technology is great, but we've all heard the old saying ‘garbage in, garbage out.’ Often, servicers blindly take the data that has been given to them from the originator and assume it's correct. If there's an error, particularly around amortization of a loan, and servicers don't catch it up front, they're going to have major problems down the road.
We're able to avoid the ‘garbage in, garbage out’ scenario because our servicing division performs approximately 200 automated data validation checks for every single loan and verifies that every data element is complete. In addition, we collaborate with our due diligence division for loan file reviews, both in purchasing MSRs and in boarding loans. We also leverage the optical character recognition (OCR) technology from our document management division, GuardianDocs, and its ability to scrape data from standardized templates – eliminating errors and reducing risk from manual input.
Q: It's been said many times that personalizing the borrower experience is critical to achieving borrower satisfaction. But considering so much of the loan servicing process is now automated, what can servicers do to personalize the service borrowers get? Today's outbound IVRs, through integration with CRM and other systems, are capable of greeting customers by name and reciting details of the last transaction – but why are so few servicers using this technology when retailers have been using it for decades?
Vida: Most subservicers haven't upgraded to this technology and have been using a one-size-fits-all solution for years. They built their businesses using cookie-cutter solutions, so it's hard to make the transition, and they think that it's much cheaper and easier to manage borrowers if you treat them the same across the board. But all borrowers aren't the same, nor are all lenders or servicers. A community bank in North Carolina that's been around for 100 years is very different from a young hedge fund in New York City.
From the start, we've taken a different approach by providing a solution that is high tech and high touch. We have three to four in-person, consultative sessions with each of our clients so we can understand their businesses and what's important to their borrowers. Then, we design and build customized solutions to better engage with their borrowers. From the first time a subservicer touches a borrower, he needs to convey the brand, culture and tone of his lender or servicer so the borrower's transition is seamless and he can feel like a part of the lender-servicer relationship. I believe that's why we've gained so much traction and have tripled the number of loans we service in the last 18 to 24 months.
Q: Considering so much of the process is now automated, what can servicers do to reduce consumer complaints via the CFPB's new consumer complaint database?
Vida: Using technology and treating borrowers as individuals can, over time, reduce complaints, but it won't eliminate them entirely. Think about it. A CFPB complaint can sometimes be similar to a passenger on an airplane asking for a hot cup of coffee; spilling it on themselves; and then going, not to their airline, but to the Federal Aviation Administration and filing a complaint that their coffee was too hot. Sometimes consumers just go straight to the top.
In any type of service industry, it's impossible to be perfect all the time. What matters is what you do before and after a customer complaint.
Servicers need to go above and beyond customer service. On average, they have 12 opportunities to engage with their borrowers every year. They shouldn't just send a statement, collect payment and be done with it. They should be more proactive with customer service – sending a statement stuffer or developing a loyalty program where borrowers who make 12 consecutive payments receive small gift cards.
And if there are issues, servicers need to fix them right away. For example, we had accidentally overcharged a local borrower. It wasn't a big amount, but seeing as our servicing center was in the area, we actually hand-delivered a letter to that borrower informing him of our mistake, apologizing for it and reimbursing him, and he couldn't believe it. We've also sent gift cards to unhappy borrowers to apologize for an issue. That's the way to satisfy customers and reduce CFPB complaints.
Q: Specifically, how does the recent acquisition of Walz Group aid in compliance for LenderLive on the servicing side of the business?
Vida: The simple answer: Walz is an expert in compliant borrower communications, particularly in the default space. They have an airtight, 50-state set of letter templates across the residential mortgage industry and are experts at document delivery. This helps our servicing division by ensuring compliance, as well as adding value to our business. We can also now call on their subject matter expertise.
Walz makes sure we're compliant in all states – verifying our work from the templates being sent out to the delivery of documents – with little or no risk to LenderLive and our clients. In addition, Walz's business complements our GuardianDocs business, which provides our clients with compliant documents and communications to support origination and loss mitigation. Where GuardianDocs' offerings end, Walz's begin. So we can provide our clients with a seamless, end-to-end origination, loss mitigation and default solution.