The mortgage servicing industry is at a cross-road of contrasting opportunities.
On one hand, high interest rates have pushed up the value of long term MSRs, proving a boon for servicers; on the other hand, potential recession risks surface opportunities in default servicing, with its own set of caveats.
Given this state of flux, how can mortgage servicers and servicing tech platforms work together towards shared success ?
To probe this deeper, Murali (CEO, Vaultedge) got into a conversation with Dan Sogorka, President of Sagent Lending Technologies.
Having spent 20+ years in the servicing industry, Dan shares his roadmap for servicing success - one that keeps ‘human’ touch & customer advocacy at the center of strategic technology investments.
Here’s a quick read -
Retaining ‘human’ element in servicing tech
Early in the conversation with Dan, it clearly emerged that adoption of technology in servicing operations should not come at the expense of the human element. For Sagent, the most important stakeholders are - lenders & servicers, homeowners, employees and investors.
At the end of day, these are actual people who get affected by the software that Sagent builds.
Acknowledging this truth is half the battle won.
The other half, is about building the right software experience for these ‘human’ stakeholders.
Dan says - “Over the years, we evolved our mindset to think - if we were in those shoes, how would we want to be treated? What would we want the software experience to be?”
This mindset helps in retaining the human element while deploying automation in servicing. Not only does the customer experience become delightful, but also the adoption of software becomes organic.
Scaling technology adoption amongst servicers
For servicers, realizing the potential of automation is one thing but scaling it sustainably, is a whole new game altogether. Whereas, for tech platforms it might be a whole lot easier.
For example, in the last 12 months, Sagent metamorphosed into an end to end cloud based loan servicing platform. It leveraged its partnerships with Mr.Cooper and acquisition of Tempo to build a 360 degree experience, complete with - cloud based loan servicing, default management and white label customer engagement portal.
Thus, Sagent went beyond its internal capabilities and tapped into the wider ecosystem to build a full product suite. In other words, for tech platforms it is much easier to foray into strategic partnerships, however the same may not hold true for legacy mortgage servicers.
Dan shares that while many servicers acknowledge the value that could be unlocked with tech adoption, they are wary of the ‘shiny object syndrome’. Lenders & servicers work in a highly regulated environment. In such a scenario, the penalty of a failed technology deployment is very high.
He says - “I think from a lender or a servicer’s perspective, you have to have the right partner, someone trustworthy who has demonstrated success in the past. You have to have some use cases that show that there's a high likelihood of success. And I think right now you really have to be able to show ROI.”
In short, it is incumbent on servicing tech platforms to not only educate but also hand-hold mortgage servicers on the ‘right’ path to scale tech adoption.
A roadmap for servicing success in 2023
While tech adoption is just one piece of the puzzle, the question is - how can servicers tweak their strategic initiatives to adapt to market realities of 2023 ?
As per Dan, in the current high interest rate environment, homeowners who are sitting on COVID era rates of 3.25%, are unlikely to go for refi. As homeowners sit tight on their current mortgages, servicers will experience far lesser churn in their servicing stock.
Thus, their number one priority should be to service these loans cost effectively.
Next on their priority list, should be to optimize the performance of their servicing portfolio. Servicers should factor in the volumes of Fannie, Freddie, Ginnie and FHA loans, as these have different risk profiles. Given the high chances of recession and possible defaults, servicers should massage their muscles which really haven't been used around default, foreclosure and bankruptcy.
Servicers should also prepare to take advantage of the bulk MSR trades that’s keeping the capital markets buzzing these days. Many non-banks & depositories that held onto MSRs in the past, are selling off these assets to boost their non-origination revenue.
This opens up opportunities for specialized servicers that are really strong in boarding, processing and managing bulk loans. Given the interest rate volatility, the window to purchase bulk MSR assets at favorable prices, might be really small. Hence servicers should quickly ramp up their loan boarding & portfolio QC capabilities with the help of automated document indexing and data verification platforms.
In a nutshell - servicers need to re-balance the risk profiles of their servicing stock, strengthen process capabilities such as loan boarding, QC & customer service and beef up default & foreclosure management, in order to stay ahead of the curve.
Wrap up
While servicers adapt to the existing market conditions, how should servicing tech platforms keep up to stay relevant ?
The first thing to focus on - should be customer advocacy.
Dan says, “ Having strong customer advocacy is the key but it's a tricky nut to crack.You need a customer that really loves what you're doing and is willing to do all the work to integrate you through all the barriers.”
The way to earn advocates is by being plainly unselfish.
The approach should be - ‘I'm going to help you and it's going to be for your benefit. Probably, you will benefit more than me and that’s okay.’
Without strong customer advocates, one becomes a sitting target for big players who can easily muscle you out.
The second thing should be choosing the right customer. During early stages, it is unwise to get stuck with large legacy customers. It becomes extremely difficult to service them at scale and that inturn stops you from growing beyond that ‘customer of one.’
Finally, the one thing that’s going to matter the most is - staying capitalized.
As per Dan - “Everything always takes longer & more capital than you think. So make sure that what you're trying to solve, you have enough money to solve it & enough runway to get to where you want to go and be realistic about it.”
In the current high interest environment, servicers and servicing tech platforms have once in a decade opportunity to grow together. However, the key here is to understand each other’s strengths & challenges and converge on common goals.
This is the only way to tide over business cycles and keep providing unparalleled servicing value to homeowners.