MORTGAGE BANKING MAGAZINE
SERVICING COLUMN, APRIL 2006
Agile Systems Move
Servicing into the Profit Arena
New, Microsoft .Net Technology Powers
Great Leap Forward
By James Dowell
In the mortgage technology world,
most of the attention is usually showered on the front-end - the putative
“money” side of the loan transaction, where prospects are
identified and turned into customers.
This may seem like a
no-brainer, but if you believe that the best business is repeat business, then
the back-seat status reserved for servicing technology is shortsighted –
and costly.
Especially when you consider
the vast amount of potential revenue, retention and return-on-investment that
goes untapped as servicers continue to use limited, patched-together legacy
systems built during the Carter Administration.
Back when originations were
measured in billions, rather than trillions, of dollars - and more recently as
single-digit interest rates have powered record volume - few servicers thought
about upgrading their technology. Following a mundane machine mentality, they
toiled in the shadows, collecting monthly payments, tabulating taxes and
gathering escrow funds. The conservative predilection of most large servicing
operations produced an endemic fear of making oversized investments in a total
system rewrite.
In the last few years,
though, as servicers have worked full tilt just to keep up with the flood of
new business, the weaknesses of these high-maintenance, 30-year-old servicing
systems have become apparent. Chief among them is an inability to capitalize on
profits that lay hidden, buried in old and new accounts.
With originations slowing
now and rates rising, the day of reckoning has arrived and just as front-end
products have evolved to meet current consumer needs, back-end procedures are
taking a great leap forward, powered by new, web-based (Microsoft .Net)
technology.
These new, agile servicing
systems provide an array of flexible options that enable servicers to profit
from the hidden “pot of gold”.
Unlike the somewhat limited
experience of loan origination, servicing is a long-term customer
relationship. Loan servicing presents the opportunity to expand services
provided by the institution and to solidify the customer base with a true, customer-centric approach
(built around what we call a “Customer Information File”).
The key to a successful and
profitable servicing operation is cost control. The challenge is
to achieve efficiency while providing a high level of customer service.
The flexibility and range of
.Net technology allows data to flow back-and-forth in a mortgage company, among
all the systems and through a single database. Whether it is the origination
system, secondary marketing, or loan servicing system, the data is integrated
to work harmoniously and intuitively. This approach is particularly important when an
enterprise expands to multiple locations since everyone can work with the same
data.
In this ‘life-cycle’ configuration, borrower tables are
linked relationally to the loans. The servicer communicates with the borrower
via telephone, fax, or e-mail channels. By integrating multiple systems,
workflow is re-oriented around the customer, virtually transforming a
previously segregated servicing function into a more responsive LOS model.
Flexibility and agility in
servicing will be indispensable in coming years as a predicted $900 billion
payment “shock” becomes reality, the result of the recent rush to
untested products like interest-only, negative amortization and adjustable-rate
mortgages. Already there is a move afoot to emphasize loan modifications as a
realistic way to deal with this coming tide of delinquencies and eventual
foreclosures.
How will technology handle
all these “problem loans?” The answer is: much better with the
real-time processing inherent in .Net technology. Whereas the old, “batch
processing” systems run at least a day behind, the new technology has
real-time processing, which moves sequentially and logically. It means the
difference between big gains or big losses, especially for large servicers
engaged in huge hedging decisions. There are multiple security levels such as,
employee-to-form, group-to-form, login security, and field level security for
maintenance. Control over exceptions is also provided in supervisor exception
queues.
As legal changes in the past
few years have made it possible for servicers to retroactively add language to
mortgage agreements, there have been even more modifications. Nimble .Net
technology accommodates this shift, using timely information that enables swift
reaction to a changing situation. To facilitate prudent decisions, we are
developing interfaces between our servicing system and several foreclosure attorney
networks.
This evolution of servicing
technology from the old mainframe design to systems that are real-time and
lightweight means that servicers also benefit from simpler hardware investments
(think Dell,
Gateway) allowing even a small operation
to bring a new servicing application in-house.
A more fluid Web environment
provides the added benefit of providing flexible environments during
emergencies; situations that suddenly shut down power sources or force an
office evacuation. Employees can work virtually anywhere through a secure
network we provide for them. (This happened during Hurricane Wilma last year,
when Hemisphere Bank employees were forced from their storm-damaged offices in
Investors
are also better supported with a
customized investor and portfolio structure allowing portfolios to be attached
to an investor. For example, unsold inventory portfolios would be attached to
the servicer, while sold portfolios are attached to investors, such as FNMA or
FHLMC. All payment logic is at the
investor level and transfers between investors are easily handled, in bulk or
one loan at a time.
It is a new day for
servicing and with responsive technology, you will be ready to meet it,
###
James Dowell is executive vice-president and chief operating officer of MortgageFlex
Systems, Inc., a leading mortgage technology innovator, headquartered in