In his essay ‘On Compromise,’ British writer John Morley wrote, ‘Evolution is not a force but a process; not a cause but a law.’ Although Morley penned those words in 1874, their meaning still holds true today, as the servicing industry now knows all too well.
Whether in regard to investor reporting, borrower communication or employee training, the process of evolving, adapting and improving is common among best-of-breed servicing shops. A diverse panel of industry professionals – including a subservicer, an investor, a rating agency rep and a tech provider – came together in Tampa last month at the Mortgage Bankers Association's National Mortgage Servicing Conference to tackle the topic of ‘Next Generation Servicers,’ highlighting both the cutting-edge and the antiquated.
Although servicers are bombarded with regulatory change and federal mandates like never before, the panelists focused more closely on operational issues that may not seem obvious upon first glance. Case in point: Maximizing a servicer's value to its investors is critical during the loan acquisition process.
‘Traditional subservicing – the way we've done it in the past – in my opinion, has changed,’ said Gene Ross, president of Virgina Beach, Va.-based LoanCare Servicing Center Inc. ‘A servicer can definitely play a role on the front end. I think, traditionally, investors have taken the view that we do not.’
But, as Ross pointed out, servicers can provide analytics and collateral reviews, as well as assist with the underwriting of mortgages that are to be boarded on a platform subsequent to a purchase and sale agreement. Many investors maintain their own return-on-investment models, but will value servicers that can provide specialized analytics for a portfolio, such as behavioral projections. Servicers should not overlook the opportunity to help investors fine-tune their pricing execution.
Gene Clark, chief operating officer and general counsel with Arch Bay Capitall LLC, echoed Ross' sentiment. ‘If you can provide a service that allows your investor to take advantage of your ability to take data accumulated from loans that you've serviced over a long period of time and help [investors] translate that [loan] valuation process, you are separating yourself from the competition,’ he said.
The next-generation investor is more hands-on, panelists agreed. Instead of monthly reports, more investors are demanding daily and, in some instances, intra-daily reports. Investors are not only valuing assets at the loan level; they're also interested in management and disposition of individual loans.
‘I would offer that investors are looking for immediate data,’ added Joseph Dombrowski, an executive consultant with Fiserv Lending Solutions. ‘They want it when they want it, not when the servicers are ready to give it.’
No reporting system, it appears, can satiate the hardest-to-please investors, but a healthy dose of transparency regarding limitations always plays to the servicer's benefit, Clark reminded attendees.
‘Let me let you in on a little hint: We know you guys don't have the best reporting out there,’ he said. ‘We just know.’ Softening the blow slightly, Clark said investors recognize that servicers simply do not have all the answers they want, and ‘the sooner servicers can embrace that concept and start adapting to it, the much better off you're going to be in your business.’
By disclosing reporting limitations up front, servicers can at least provide investors with a baseline of information, allowing investors to understand with confidence which data is completely reliable and which requires further analysis.
Moderator Steven R. Paton, senior vice president of loan administration with Marix Servicing LLC, added that ease of delivery is another important consideration. Data that emanates from a single source alleviates some of the burden associated with servicer-investor communications. If all the parties are on the same page, ‘that makes it much easier for us to help translate or answer questions about specific accounts,’ he said.
‘If we take a look at the composition of your consumer base, in a relatively short time – by 2015 – Gen. Y will be a total of 35 percent of your consumer base,’ commented Dombrowski. ‘That means those folks that are on their Blackberries and Twittering, on Facebook and MySpace, will become your consumers and your workforce. And that has true implications on how you do business.’
Although terms like blogs and vodcasts could very well be Greek to some servicers, they are not to a burgeoning borrower demographic: the twentysomethings. Forward-thinking servicers are aware of this phenomenon and are already leveraging online social networks and text messages to reach borrowers. However, the emergence of new technology does not equate to an extinction of traditional borrower-contact methods, Clark stressed.
‘The way you communicate with borrowers hasn't really changed; it's just expanded,’ he said. ‘A letter may not be the most effective way to hit everybody like it used to be, but it's still effective with some.’
Determining which communication channels to utilize may not be an easy proposition, as a servicing manager must take into account the potential reach and sustainability of the various options. Paton called the extensive use of e-mail ‘very logical,’ but added that the challenge in growing e-mail communication is the lack of valid e-mail addresses for borrowers.
If a servicer only has accurate addresses for 20% of its consumer base, it must still rely on sending letters. ‘You have to get probably upwards of 80 percent to 90 percent penetration with e-mail addresses to make it really useful,’ he said.
Furthermore, there is no guarantee that a specific technology will have a long enough life span to justify molding new practices around it. What's a revolutionary technology today could ultimately be little more than a flash in the pan tomorrow. Nonetheless, it is important that servicers do not limit themselves to the strategies of yesteryear.
‘This upcoming population of consumers has been plugged in from infancy,’ Dombrowski said. ‘They're not only comfortable with technology; they embrace and demand technology.’ This trend, he added, is also true of the incoming, U.S.-based workforce. While inputting data from spreadsheets has long been an industry practice, the next generation of employees will likely expect what Dombrowski calls ‘extreme automation.’
The panelists agreed that examining other industries may help servicers become better in-tune with the needs of future borrowers and employees. ‘Servicers – I don't want to say they tend to be insular – but we tend to really reference one another when it comes to managing work,’ Dombrowski said. ‘Those that really strike out and do something different stand out, because they research what other elements of society are doing legwork.’
Utility and telecommunications companies, for example, may provide new ideas for payment transaction best practices. Clark suggested that some shops may also consider hiring consultants outside the mortgage industry to analyze customer contact techniques.
‘Technologically, are you looking at other industries and finding out how they're integrating and how they're talking to one another?’ he asked. ‘You try to bring that into your business as well. We can't keep staying in the same trough, going down the same direction for the foreseeable future.â�¦ We need to pull in other good ideas from other industries and try to incorporate them.’