Lessons from Pandemic Service
This piece originally appeared in the September 2022 edition of DS News magazine, online now.
Speaking at a recent Five Star webinar titled “Is 2022-2023 really the golden age of mortgage servicing? Seth Sprague, CMB, director of advisory services for Richey May, noted that, traditionally speaking, mortgage managers fare better in times like the one we’re experiencing now: times characterized by slow prepayments. and volunteers; timely payments; and low crime rates.
“There’s been a lot of focus in this industry on quality of origins, and we see that in the service portfolios that exist today,” Sprague added. “The trick to managing cash flow is having borrowers who make timely payments, [and to] having an effective technology stack that intercedes with these customers when they want to interact with them. »
Such a technology stack allows a repairman to keep costs low, revenues high and, most importantly, progress low, Sprague explained.
But with the origins side of the industry facing headwinds in the form of continued interest rate increases and the resulting economic slowdown as the Fed attempts to steer around a possible recession, the second half of 2022 truly advertise itself as a “Golden Age” service? Joining Sprague in commenting on the topic were Jay Jones, executive vice president of maintenance for Mr. Cooper; Dan Sogorka, President and CEO of Sagent; and Julian Hebron, founder of The Basis Point, a “sales and marketing strategy consultancy for banks, lenders and fintechs.”
The state of the industry
At the height of COVID-19, the number of abstentions increased as the government stepped in to try to mitigate the effects of the pandemic and keep as many struggling homeowners in their homes as possible during the global health crisis. As these have started to shrink and delinquencies and advances have declined, mortgage servicers are enjoying strong cash flow, according to Sprague.
“Strategy is very important depending on your overall business model, and it’s important that your strategy aligns with your core competencies, your technology, and what your consumers are telling you,” Sprague said.
Consumers today demand more transparency about loans, as well as easy access to their information, said Jay Jones, executive vice president of maintenance at Mr. Cooper. They expect repairers to perform at a certain level, regardless of what is happening in the environment.
Sagent saw an opportunity to focus more on consumer needs and expectations as a way to differentiate the company in a crowded market, said Dan Sogorka, president and CEO of Sagent. “If you do that, you can actually make money as a repairman. It can be a good business for you.
Giving consumers what they need (and want)
With foreclosures back to pre-pandemic levels, repairers can now help consumers resolve their payments by offering customer-facing tools that give them easy access to their information, Sogorka said. “You want them to be able to serve themselves.”
“We have to listen to our customers,” Jones added. They need to be able to indicate when they have a problem, while services need to understand the borrower’s situation.
“We’ve had default cycles and rising rate environments,” Jones said. But there wasn’t as much equity in the market before, which means borrower behavior may be different than in the past.
If a borrower has had a change in the past two years, it may be difficult to get another one. If they’re already at very low rates and have already rolled over some principal, it might be time to discuss selling their home, Jones said. “It’s really about listening to that consumer, understanding where they are right now in that environment, and then understanding what their options are.”
Just having a few delinquent loans in a judicial foreclosure state or a high tax assurance state that happens to be forensic can really have a negative impact on cash flow, Sprague said. Although service values have increased, prepayment speeds have slowed.
It’s important to look at real money received from the interview — real money, real expenses, real advances, Sprague added. “You need to take a closer look at what the real breakthrough is and what your breakthroughs might be in the future. Are you ready for this? Do you have enough money to handle this? What are your contingencies? It is essential to understand that the cash implication of maintenance is essential.”
Marrying compliance with customer service
“The interview has become complex,” Jones said. “Some of the compliance rules are complex. You need technology that lets you understand what the rules are, what the options are, and how to take the next step.
According to Jones, the 2008 market taught repairers important lessons about managing compliance.
“You need to have a robust system that allows you to manage compliant internal processes. We’re always going to have exceptions, but taking this system and using the data we have behind it to understand what’s happening with customers, what they’re eligible for, what they may have already been turned down for and what is your next discussion step going to be [is critical]. You need a system robust enough to handle all that complexity while you’re on the phone with a consumer.
The consumer expects the repairer to have all this information readily available and demands that he do so. They may want to know what their options are, understand what they need to do next to make sure they stay home, which is everyone’s goal at the end of the day, Jones explained.
Repairers need to have the right system in place, with the right compliance rules, to better serve the customer while protecting the repairer and informing customers of the next steps in the process, Jones said.
The quality of industry data has improved significantly. Sprague noted that consumers are now contacted quickly after a late payment, rather than seeing that contact occur after day 45 of a default.
“You need to make sure the repairman is the trusted advisor in this space. I know Mr. Cooper and others are very proactive in trying to reach out to these borrowers and say, “We’re here to help. The industry, to some extent, has overcome some of its past sins. We have good quality
borrowers, we have good quality data and better systems than in the past.
Better results lead to lower costs, lower advances and better profitability, Sprague noted.
“But you have to have this good synchronization between these metrics and this technology stack.”
The maintenance system needs to handle data properly, Sogorka said, noting that transferring maintenance rights has been problematic in the past. “We are improving that. We spend a lot of time on technology, to initiate the loan efficiently to get the right information at the right time, automating that so there’s not a lot of human error involved and moving away from spreadsheets and Excel.
The industry has largely moved away from siled creative and service businesses, Sogorka added. It should be easy to get any product offered by a financial services company, which was not the case in a siled environment.
The right system and the right tools are key, Jones agreed. “Penalties can be significant. Not only do you impact the customer you want to retain down the road, but you may have compliance risk and compliance costs. »
A golden age?
“If you have the right technology and you can use data to leverage your interactions with your consumer, you’re going to grow that relationship,” Jones said. When you show the consumer that you care about their assets, educate them on the things they need to do to protect their home, your value will continue to increase. Consumers stay with a repairer for a longer period of time.
It’s a tough business, warned Sogorka. The hours are long and it only takes a few mistakes out of thousands to have a huge negative impact on the business.
Uncertainty of cash flows or uncertainty of economic conditions does not cause MSR values to continue to rise; rather, it’s higher prepayment speeds and escrow revenue, Sprague said. “The current inflation uncertainty could be driving more uncertainty around cash flow. It’s not always a home run. High defaults, or service costs a little high, might cause MSRs to not be as valuable.
“When you think of today’s consumer, the short answer is: it should be the golden age,” Jones said. Many consumers live in homes they love, with low rates and no desire to move, especially if they work from home.
“The challenge you have is everything that impacts our customers today outside of mortgages,” Jones added – issues ranging from inflation to ongoing challenges from COVID-19 and others. problems.
“Some of the new customers we have will want more technology than we have today,” Jones added. “They’re going to have more interaction with the tools that we have to keep creating. So I would say that there is a generation, where it will be the golden age for sure. But there are caveats due to much of the market environment around them – as it continues to evolve, so will their needs.
Another thing that needs to change is faster and more transparent information to customers about the transfer service, Jones says.
Sprague added that there is currently a lot of confusion among consumers as to when a transfer actually occurs.
“Outside of our industry, nobody has a clue about this stuff,” Sogorka said. “We’re two and a half years away from fixing the maintenance tech stack, and it’s taking time because there’s a lot of platforms and a lot of systems and it’s very siled. The good news is that it’s not not complex. We don’t need an Einstein to try to figure out how we’re going to do this.
The challenge, Sogorka added, is that for 50 years all repairers had to do was send a letter and collect money. Consumers had low expectations. But that changed quickly with new regulations and growing consumer demand.
However, much of the underlying technology the industry relies on is 50-60 years old. As the industry updates this technology, the process will improve for consumers and repairers.