Keeping Your Loans at Home

Servicing Retention Provides Income Until the Refinance Market Resurges

By Susan Graham FICS

Rising property values and low interest rates pushed mort gage loan origination volume to roughly $4 trillion in 2021, the highest level ever recorded. Since then, rising inflation and interest rates have curtailed loan applications — particularly refinances. The 30-year fixed mortgage rate topped 7% — the highest rate since 2002 — on November 10, 2022. “Higher mortgage rates have pushed refinance activity down more than 80 percent from last year,” said Joel Kan, the Mortgage Bankers Association’s AVP of Economic and Industry Forecasting.

The key may be servicing fees, income that helps credit union lenders offset revenue losses due to lower origination volume. Credit union mortgage lenders that sell off loans to the GSEs or other investors to free up liquidity may want to consider retaining servicing. By investing in the right mortgage servicing software, lenders can effectively service their loans in-house. The right software can help servicers comply with investor requirements and create value for their organization and its members.

BENEFITS OF IN-HOUSE SERVICING

Selling mortgage loans on the secondary market provides liquidity, freeing up funds for additional lending so lenders can originate more loans (focusing on purchases instead of refinances). Lenders that sell to the GSEs may choose to retain the servicing rights. Keeping servicing in-house benefits both credit unions and their members by generating servicing fee income, increasing cross-selling opportunities, and improving the member experience.

Consider the following:

Service fee income. Well-trained staff using robust mortgage servicing software can service 700 or more loans per employee. Doing some simple math, using the average loan size in early November ($389,400) and the standard service fee of 25 basis points for the year, each servicing employee can generate more than $680,000 in annual service fee income alone. Ancillary income, such as late fees and commissions on optional insurance, increases the profits.

Cross-selling opportunities. Inhouse servicing can also lead to more sales opportunities via more personal relationships with members. Lenders can become a trusted advisor to the member to help protect the asset and offer home improvement loans as well as options for home maintenance to generate additional revenue and provide a positive member experience.

Access to future refi prospects. By retaining servicing, credit unions maintain their relationship with their members, giving them access to borrowers who may choose to refinance when interest rates drop. When the conditions are right, credit unions can reach out to borrowers, inviting them to refinance. If credit unions sell those loans, they give away their direct access to these borrowers and first-hand visibility to their mortgage loan. By selling off their servicing rights, they also lose potential revenue opportunity.

Member satisfaction. Transferring servicing to another institution jeopardizes customer satisfaction. According to J.D. Power’s 2022 U.S. Mortgage Servicer Satisfaction Study, overall customer satisfaction and trust in the servicer drop when the mortgage is transferred to a servicer that is different from the originator. The originating firm that made the transfer also suffers, with only 15 percent of transferred customers saying they are “very likely” to consider using the original lender in the future. By retaining servicing, credit unions build borrower trust and loyalty

Better communication. When servicing is done in-house, credit unions can provide the exceptional customer service that members — and the Consumer Financial Protection Bureau (CFPB) — expect. When servicing is outsourced, credit unions have no control over the quality of the customer service delivered by the third-party provider.

Although most borrowers have exited COVID-19-related forbearance, approximately 350,000 homeowners were still in forbearance plans as of October 31, 2022. Total loans in forbearance increased slightly in October. “Several factors were behind the first monthly increase in forbearances in 29 months, including the effects of Hurricane Ian in the Southeast… and the fact that new forbearance requests have closely matched forbearance exits for the past three months,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis.

As borrowers exit forbearance plans, communication between mortgage professionals and borrowers is more important than ever. The CFPB warned servicers to take all steps to prevent avoidable foreclosures as borrowers exit forbearance. The CFPB is paying close attention to how well servicers are: Being proactive. “Servicers should contact borrowers in forbearance before the end of the forbearance period so they have time to apply for help.” working with borrowers. “Servicers should work to ensure borrowers have all necessary information and should help borrowers in obtaining documents and other information needed to evaluate the borrowers for assistance.”

Handling inquiries promptly. “The CFPB will closely examine servicer conduct where hold times are longer than industry averages.” Preventing avoidable foreclosures. “The CFPB will expect servicers to comply with foreclosure restrictions in Regulation X and other federal and state restrictions in order to ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated.”

During these challenging financial times, when many borrowers need prompt, exceptional communication, personalized attention, and assistance from their servicer, in-house servicing has even greater value

SERVICING SOFTWARE SIMPLIFIES IN-HOUSE SERVICING

To make in-house servicing efficient and effective, credit union servicers should use mortgage servicing software that integrates with other in-house software, such as the core system and loan origination system (LOS), to provide seamless data flow for every facet of mortgage servicing. Mortgage servicing software automates investor reporting, making it easy for servicers to comply with investor reporting requirements and accurately remit funds and report on the status of the loans in their portfolio.

Web applications give members convenient, immediate access to their upto-date mortgage information, allowing them to make online payments and access real-time loan information and documents. Web applications are an easy way for servicers to communicate with borrowers. Servicers can use web apps to send personalized email messages such as, “Your forbearance period ends on March 15th. Contact us now to discuss repayment options.”

DON’T FORGET THE HUMAN TOUCH

While 90% of consumers use digital banking channels, human interaction (in person or by phone) is essential for providing financial advice and executing more complex transactions. Two-thirds of consumers prefer to rely on human expertise when getting any financial advice.

Digital mortgage technology such as mortgage servicing software and web applications can provide loan information “ondemand,” but borrowers still want the human touch. While they may prefer to check their balance or make payments online, many members still want to interact with real, live mortgage professionals occasionally — such as when exiting forbearance.

Credit union servicers that embrace a hybrid approach — blending self-service technology with support from welltrained mortgage professionals — will have more loyal, satisfied members.

By retaining servicing and utilizing the best mortgage servicing software, credit union servicers can increase revenue while delivering superior customer service that promotes borrower retention. Web applications give borrowers 24/7 self-service access to loan information, leaving servicers more time to provide personalized support and financial advice when members need them.

Susan Graham is president and chief operating officer of FICS (Financial Industry Computer Systems, Inc.), a mortgage software company that provides flexible loan origination and mortgage servicing software. Susan Graham