How to gain a competitive edge through in-house servicing

Analysts in the mortgage industry are projecting that 2024 will be a better year than 2023 across the board. In a HousingWire report, analyst firm Jeffries said that they believe the worst of the current mortgage cycle is behind us, and Moody’s forecasts that the Federal Reserve will decrease rates three or four times this year.

According to those analysts, lenders may have sold their mortgage servicing rights (MSRs) throughout 2023 to increase short-term liquidity, putting them at a disadvantage when refis pick up. In the article, Moody’s said they anticipate an increase in MSR sales in 2024, which will result in a short-term gain in liquidity at the expense of a weaker franchise in the future.

Why should lenders retain servicing? Maintaining MSRs generates servicing fee income and helps servicers improve the customer experience. Additionally, modern mortgage servicing software and Application Programming Interfaces (APIs) automate investor reporting and compliance and create a more efficient workflow, effectively allowing servicers to service loans in-house to maximize their advantages.

In-house servicing is essential for customer satisfaction and retention

Transferring servicing to another institution jeopardizes customer satisfaction. According to J.D. Power’s 2023 U.S. Mortgage Servicer Satisfaction Study, overall customer satisfaction with mortgage servicers drops significantly among the customers who had their mortgage transferred to a servicer that they did not choose. Overall satisfaction scores are 119 points lower when customers do not choose their servicer.

Retaining servicing helps lenders build borrower trust and loyalty. When servicing is done in-house, servicers can provide the exceptional communication and customer service that customers expect. When servicing is outsourced, lenders have no control over the quality of the communication and overall customer service delivered by the third-party provider.

In addition to benefiting customers, in-house servicing generates significant revenue. Well-trained staff using the right mortgage servicing software can service 700 or more loans per employee. Using the average loan size in January 2024 of $414,900, along with the standard service fee of 25 basis points for the year, each servicing employee can generate more than $726,000 in annual service fee income alone. Late fees and commissions on optional insurance can also increase revenue.

By retaining servicing, lenders maintain relationships with borrowers, enhancing a lender’s ability to cross-sell products. This allows the marketing of various other offerings such as credit cards, car loans or depository accounts to clients with whom the lender already has a relationship. If lenders don’t retain servicing, they give away their direct access to these borrowers and first-hand visibility to their mortgage loans. Additionally, effective loan servicing builds a bond where the servicer becomes a trusted advisor to the homeowner. This relationship can then be leveraged to offer the borrower additional services like asset protection, insurance products, home improvement loans and maintenance options, thereby increasing revenue and ensuring a positive customer experience.

These benefits add up to a decisive competitive advantage for these institutions.

Servicing software APIs simplify in-house servicing

Digital technologies can help lenders reduce errors, costs, and processing times, delivering better service. APIs provide an interface that enables servicing applications to communicate back and forth easily without user awareness or intervention. One of the most significant benefits of utilizing APIs is their workflow automation. APIs facilitate the integration of software programs, enabling mortgage professionals to establish a robust technological environment that facilitates automatic communication between systems.

Enhanced automation offers numerous advantages, such as decreased errors, reduced staffing hours and costs, and smoother operations. In addition to saving time, APIs minimize errors stemming from human oversight. They also grant borrowers faster, real-time access to statements and loan information through the consumer-facing website.

By utilizing APIs, lenders and servicers can automate their processes and eliminate much manual labor, allowing them to deliver loan information to borrowers and reporting to investors more quickly and accurately. For example, using the API with FICS’ mortgage servicing software Mortgage Servicer, lenders can maximize their capabilities, ensuring a user-friendly solution for servicers that automates residential servicing operations. Automated services include payment processing, investor reporting, escrow administration, custodial accounting, imaging and report writing. Additionally, borrowers can log into online banking for up-to-date information and to view their statements electronically.

Servicing software simplifies compliance and investor reporting

Mortgage servicing software undergoes regular updates to adapt to evolving regulations and standards. In addition to this, servicers require software capable of automating investor reporting. Servicers are obligated to report payment and default activities to the GSEs routinely. These reports must fulfill daily and monthly funding requirements, meet other specified reporting criteria, address discrepancies and reconcile custodial accounts.

Top-tier mortgage servicing software platforms like Mortgage Servicer are equipped to handle all industry-standard reporting methods. They generate reconciliation, remittance, delinquency, prepaid and balance reports, and they manage the advance and recovery of Principal and Interest (P&I) and Taxes and Insurance (T&I).

Another critical aspect of seamless reporting is having direct access to all loan data in the database. While loan origination and servicing systems offer standard reports, servicers need more tailored reports to manage loans efficiently. Mortgage Servicer ensures lenders access to all their data, and in addition to extracting data within the system, lenders have the flexibility to extract any data directly from the database tables. Data can easily be extracted in report or a variety of file formats, allowing servicers to conveniently customize reports and create files for other software integrations.

Seamless data flow into and out of a mortgage company is critical to creating a high-efficiency enterprise. Data portability is vital. The best software ensures full access, making migrating data to another vendor or just sharing data with other systems easier. This allows lenders the freedom to work with various software vendors, peace of mind knowing they can access their data at any time and flexibility to adapt if the lender’s needs change.

It’s easy to see why more institutions are choosing to service their loans and why modern servicing software is currently in high demand. Servicing retention is critical to customer retention and revenue at a time when the lender’s profitability may depend upon it.

To learn more about FICS’ mortgage software solutions, click here.

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