Black Knight renews Cenlar contract as focus on tech alliances grows

Sub-servicing giant Cenlar has signed a “long-term renewal” contract with technology provider Black Knight — a move that takes on heightened importance when juxtaposed with another recent vendor alliance.

Mr. Cooper, a sizable publicly traded company with sub-servicing accounting for roughly half of its portfolio, recently purchased a 20% stake in industry vendor Sagent, a Black Knight competitor.

The two alliances suggest companies handling mortgage payments are relying more on automation to distinguish themselves.

The Black Knight partnership is particularly notable given a consent order Cenlar received last year, in which it agreed to ensure that it had risk controls commensurate with its size, and obtain approvals to add new customers. The contract the subservicer recently renewed with Black Knight includes not only the latter’s core mortgage servicing platform, but also ancillary and newer technology built to handle the riskier aspects of servicing such as loss mitigation and default. Loss mit and default are expected to become more prominent servicing functions this year as payment relief extended for pandemic-related hardships are phased out.

“Black Knight’s commitment to investing in solutions that benefit our business, along with their industry leading servicing solutions, have supported our operations, and their solutions easily scale to accommodate our business,” said Robert Lux, chief operating officer of Cenlar, in a press release.

Regulators in the past have indicated that they won’t tolerate the use of a mortgage servicing system that is inadequate. Previously, another large company, Ocwen, agreed to replace its servicing technology with MSP to settle some allegations by the Consumer Financial Protection Bureau and state regulators. The regulators had alleged that automation previously used by that company, which also sub-serviced loans, was ineffective at even the most basic of tasks.

These two tech recent alliances are setting the stage for a battle to dominate the market, given that subservicers prefer to use whatever system the bulk of their clients are most likely to have. Also, mortgage companies that are looking to engage in the current hot servicing-rights market are likely to find it easier to close deals when information associated with the borrower payments can be transferred smoothly through automated means, which makes market dominance all the more important.

In favor of Black Knight on that count is the fact that its market share within the servicing market is considered particularly entrenched. A Seeking Alpha report from last year called Black Knight’s technology “so embedded in … servicers’ operations that replacing it is akin to ripping the lungs of a major institution’s mortgage department,” and the company also recently reported record sales in the past year.

However, Mr. Cooper’s deal with Sagent hands a newer in-house platform the large servicer has to Sagent in exchange for the equity stake, and some think the combined operation has enough modernization and traction with customers to be competitive. A recent report by The Basis Point estimates that retention rates in Mr. Cooper’s earnings are about twice the industry average.

“This links the two firms together as fintech development partners who have the size and skill to modernize this creaky part of consumer finance,” The Basis Point analysis said.