Every time mortgage servicing rights change hands, the new owner has a chance to look at the economics and recapture rates involved to see if they can do better or not.
This should keep the industry watchful of expenses, which could be particularly important if a recession is indeed in the offing as forecasts increasingly predict.
Recently National Mortgage News spoke to BSI Financial CEO Gagan Sharma about what subservicing and other cost saving opportunities exist in this type of market environment.
The following are excerpts from the interview with Sharma, edited for clarity and length.
What’s one of the biggest challenges or opportunities for subservicing this year?
One thing that we are seeing is a lot of the owners of servicing, especially independent mortgage bankers, have been selling rather than retaining. One sees a lot of transactions that are coming into the market.
Most of the time the independent mortgage bankers use a subservicer. When assets get traded, some clients may want to move from one subservicer to another.
Do you see any particular trend in decisions about whether or not public companies outsource servicing operations or invest in technology?
I would think of it more as a scale question. To do something in-house in servicing with all its rules, compliance, and changing guidelines is not an easy thing to do. One has got to be at least a certain minimum scale and I think it has to be a long-term commitment to that strategy.
What do you think about the outlook for servicing costs?
A lot of servicers have invested a fair bit in technology from a digital, customer-facing perspective and that will help.
Nobody likes to pick up the phone and call their bank, order food or a taxi. All of these things you do online, and as a mortgage industry, we are basically giving the consumer a similar experience, or at least that's what we're driving toward. That is taking cost out of the system and actually giving the consumer better service.
There are also a lot of interesting things happening in document indexing and data management. What used to be called OCR [optical character recognition] technology has gotten more sophisticated. A human can only process so many loans and a system has fewer limits.
People are still developing use cases for artificial intelligencein the industry. OCR could be considered one because it is using machine learning to improve how it reads documents.
Some streamlining of loss mitigation has come out of the pandemic. Do you think this will help servicers manage costs?
If we are offering loss mitigation, there is going to be some amount of cost. Every time there is a change like this there are new legal, operational and technological aspects of it to manage.
What do you think of the new Ginnie Mae and GSE counterparty requirements? Will they be a challenge to adapt to?
Giving the industry some time to adapt is what I look for. There's going to be some non-zero impact. Some people are going to say it could become a reason they don't want to participate in the servicing business and may think about that. It means they have to be comfortable with the new financial and the capital aspects of servicing in addition to the operations. People will make different choices in response to that. There has been availability of capital in the industry, but the cost has changed from three years ago.
Do you think the counterparty requirements could have an impact on the MSR market?
There's always a question of how many buyers you have. Could there be a scenario where you have zero? Yes, but there typically isn't one.
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