Some servicing risks will grow in 2025 if rates follow the path in consensus forecasts.
"We do think prepayment speeds are going to inch higher if rates remain flat, and one of the primary reasons for that is
So far, any anticipated challenges in the forecast for servicing aren't at the point where there's much expectation they'll curtail the sector's opportunities broadly. But even if they start to, there are steps servicers can take to mitigate such concerns.
Efficient customer-recapture efforts that reduce prepayment risk for servicers and give origination units they partner with leads could help if rates remain at a level that limits gains on both sides of the business, said Sandra Madigan, chief digital officer at ICE Mortgage Technology.
The company has increasingly brought together the functions of its widely-used origination system and the broadly utilized Black Knight servicing platform it bought in 2023 to this end, she said.
"I would say you'll never have an origination system that can service loans, nor would you ever want to originate loans through a servicing system, because they serve two completely different functions. But there's no reason why the integration can't be lights out and seamless," she said.
Mortgage companies also can expect to see further innovation aimed at automating loan transfers more smoothly and accurately. The process is a common customer service and compliance pain point, said Dana Federspiel, a senior vice president at ICE Mortgage.
This is a growing concern the Consumer Financial Protection Bureau has been eyeing because borrowers tend to assume payment authorizations continue when they get notice of a servicing transfer. They can end up with a delinquency on their record if payments lapse as a result.
To address that concern, ICE Mortgage Technology has been working on "a digital experience for the homeowner to understand what's going on with a servicing transfer, to be able to make sure that their ACH is transferring, and to know where to make their payment," Federspiel said.
Secondary market trades of first-lien mortgage servicing rights are expected to continue to run at a fast clip next year.
Demand for MSR financing also will persist, said Chris Gavin, co-chair of the structured finance, residential mortgage and securitization practices at law firm Winston & Strawn.
"Hedge funds are still looking to have exposure to the MSR economics," he said.
However, some trends in capital markets activity could change, according to Gavin, who noted that if delinquencies pick up due to some weakness in the economy, there might be more activity involving servicing advance facilities.
Whether and how much delinquencies pick up depends on the extent to which future
If the economy weakens to the point where loan performance issues accelerate, a particular compliance concern that could intensify next year is the distressed servicing ruleset in
"People think Reg X needs to be revamped, but I don't know if everybody agrees on how," Long said. "We'd love to see it but it's been years, and we have yet to see it."
Another policy question in 2025 will be what happens when the Department of Veterans Affairs' voluntary foreclosure ban ends. The ban accommodated a wait for
The VA has instructed servicers to only provide the last-resort aid if all other regular options fail.
"I firmly believe that the industry as a whole will continue to ensure that all proper loss mitigation review will take place prior to proceeding with foreclosure," said Marissa Yaker, deputy general counsel in regulatory affairs at Padgett Law Group.
