STRATMOR Senior Partner Michael Grad explored the ways in which economic opportunities inherent in a superior mortgage servicing operation can raise the stakes on the transfer of servicing (TOS) to new providers and/or systems. Recognizing the critical importance of successful TOS, STRATMOR has developed a standardized, “battle-tested” TOS methodology for its mortgage industry clients. As Grad explained, it is not surprising how much of the industry’s focus has shifted to mortgage servicing operations and cost containment over the last several years.
“Servicing operations have risen in prominence over the last several years for a variety of reasons,” Grad said. “Not the least of which has been the increased scrutiny by both state and federal regulatory authorities which has in turn contributed to a dramatic increase in the direct unit cost of servicing a loan. Likewise, the regulatory imbalance between bank and non-bank servicers – with the latter subject to fewer constraints – has increased the size and frequency of bulk servicing transfers from bank to non-bank servicers. At the same time, the coupling of GSE fee parity between large and smaller lenders with historically low interest rates has made retention of servicing rights far more attractive to many mid-size and smaller lenders. Near-term, STRATMOR expects an increase in bulk servicing transfers as some of these lenders bring their servicing in-house while others sell servicing rights to capitalize on increased portfolio value or offset potentially lower origination income.
“We analyzed the relationship between borrower retention and the value of mortgage servicing rights, finding that retention rates of 50 to 75 percent can increase the economic value of an MSR by 33 to 50 percent.” Grad continued. “There is significant borrower relationship value at stake when a large servicing portfolio is transferred from one platform to another. For the borrower, a smooth transfer is one that’s invisible – no interruptions, missed payments or degradation in customer service and most importantly, no errors. Since satisfaction with a current lender is a key driver of the likelihood of borrower retention, mismanaged transfers can directly impact the value of purchased MSRs. For existing owned servicing portfolios, a botched TOS from one subservicer or platform to another can destroy years of relationship value. That being the case, a TOS process and methodology must be established that facilitates the transferring of borrower relationships, while also successfully transferring loan data.”
Understanding that it is critical to assure such transfers are expertly performed in all their complexity, STRATMOR has developed a seven stage TOS methodology, detailed in Grad’s In Focus piece in this month’s STRATMOR Insights. The process leads to successful borrower-centric, fact-based and disciplined servicing transfers, as perceived by the transferor servicer, the transferee and, most importantly, the borrower. STRATMOR’s TOS Methodology was recently put to the test by a top-tier lender in the transfer of hundreds of thousands of loans from one subservicer to another. On every Key Performance Indicator – from borrower contact, communications and complaints, to payment processing and subsequent delinquencies – the results exceeded the targets established early-on in the project.