At IMN’s Residential Mortgage Servicing Rights Forum an afternoon panel discussed servicing related strategies.
One thing is clear, it’s a big investment to do it yourself. You have to consider infrastructure, compliance ( which has gone down recently but isn’t going away) and your ability to protect information. There are also the people issues, do you want to manage possibly thousands of people. Many of the subservicers have already made these investments.
The decision whether to do your own servicing or subservice might depend on what your business model is. Your servicing strategy has to be consistent with your loan acquisition strategy, whether your buying an originator or purchasing through portfolio or using a warehouse channel. Buyers should have a clear understanding of what they are buying and what they are good at doing and not doing form a servicing perspective.
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Michael Lau, CEO, Pingora Asset Mgmt; Paul Birkett, Managing Member Automated Holdings, Jennifer McGuinness, Co-Founder Mortgage Venture Partners; Patrick DellaValle, Director, Navigant Consulting; Chris Delfs, SVP Capital Markets Suntrust Mortgage[/caption]
“There is a difference between whole loan, wholesale and correspondent” said Jennifer McGuiness of Mortgage Venture Partners “The risk profiles for the three channels are different, the manners in which you are protected or not protected are different and then the question is do you want to buy somebody else’s wholesale risk or do you want to buy your own. Or do you want to buy somebody else’s retail risk, or do you want to buy your own. “
If you are going to be buying a company to get servicing, in the due diligence process you have core factors you look at – operations , compliance, HR. When looking at the companies servicing platform you are looking at the same attributes - are they scaleable, can they execute on the strategy, do they have the ability to source talent for their portfolio size and going forward, do they have new technology and do they have capacity.
As Paul Birkett, Managing Member of Automated Holdings LLC said “ We are buying non performing and re-performing loans and have multiple sub servicers and managed law firms on our platform. So we took a different angle. We have 35 law firms that manage the rate of recovery and servicers that mange the borrower. That accelerates the work out process. I think we could look to be a servicer at some time but that is probably way off. You make money pennies at a time and loose dollars at a time.”
Many lenders have have multiple servicers. According to Ms McGuiness there is a reason for this. " Not all servicers are created equal. They are not all meant to service the same product, They are not all good at the same thing. If you find a svcer who can do every product well at every phase I would be their partner. With that said, I think that with different businesses and execution cycles it can be hard to do it yourself. That is where the subservicer ads value."
One situation that might call for doing things in-house was if you were dealing with a large number of alternative products, products that were open ended and dynamic like building loans and products that implement a line of credit. In these loans you control the advances more pointedly. This isn’t something the standard performing servicer can take on, at least not at a price that many would find palatable.
Another argument for going in-house is the ability to control the outcome because that dictates the servicing yield on the portfolio. You want to be able to control the quality of the customer experience and directly control retention.
