A how-to for keeping customers for life in today’s market
The mortgage servicing industry is a complex cross-section of the housing finance system, with current market cycles presenting both additional complexities and opportunities for servicers to find wins in unexpected places. High-interest rates have increased the value of mortgage servicing rights (MSRs), which presents a boost for servicers. Meanwhile, a potential recession has highlighted opportunities in default servicing, which brings its own unique set of challenges. So how can mortgage servicers —powered by smarter, faster fintech — seize on these opportunities?
Recently, Murali Tirupati, CEO of Vaultedge, sat down with Sagent CEO Dan Sogorka to answer this question and more. Read on for a recap of their discussion and reap the benefits of Dan’s 20+ years in mortgage with a peek into his roadmap for servicing successes which places human touch and customer advocacy squarely at the center of strategic tech investments and decision-making.
Servicing tech, but keep it human
From the start, Dan placed an emphasis on investing and adopting technology that preserves and augments the human element in servicing operations.
At Sagent, the most important stakeholders guiding our product strategy and roadmap include lenders and servicers, homeowners, employees, and investors. Ultimately, these are real people who are affected by the real decisions we make as we build the future of servicing. Accepting that is one half of the equation, and the other half of it is intuitively building and enhancing that human element into the software we build for them.
As Dan put it, “Over the years, we evolved our mindset to think — if we were in those shoes, how would we want to be treated? What would we want the software experience to be?”
This insistence on prioritizing the human element becomes further apparent when we start talking about automation in servicing. Thoughtful automation should be deployed with the human element in mind so the experience is delightful and the adoption of our software feels organic to both our servicing clients and the homeowners they serve.
Powering scalable tech adoption for servicers
For servicers, understanding the potential of automation is one thing, but scaling it sustainably is an entirely different challenge, especially for mortgage servicers with legacy technology.
Over the last 12 months, Sagent has accelerated our push to dramatically change the dynamics of America’s housing industry to deliver positive homeowner outcomes with our cloud-native, open-API core servicing, default, and homeowner experience platforms. Our partnership with Mr. Cooper has helped us go even faster, offering servicers a 360-degree experience, complete with cloud-based loan servicing, default management, and a white-label customer engagement portal.
We’ve tapped our internal strengths and strategically partnered to work with the best in the larger ecosystem to build out our expansive product suite. For us, collaborating directly with other key players in the market is easy; for mortgage servicers with legacy technology, that kind of collaboration can prove difficult.
As Dan points out, while many servicers acknowledge the value that could be unlocked with tech adoption, they’re wary of the “shiny object syndrome.” Lenders and servicers operate in a highly technical environment where every detail is heavily regulated, and the stakes for tech deployment are high.
Dan explains, “I think from a lender or a servicer’s perspective, you have to have the right partner, someone trustworthy who has demonstrated success in the past. You have to have some use cases that show that there’s a high likelihood of success. And I think right now you really have to be able to show ROI.”
In short, it is incumbent upon servicing tech partners not just to educate but also to hand-hold mortgage servicers and guide them down the right path for scalable tech adoption.
A roadmap for servicing success in 2023
While tech adoption is just one piece of the puzzle, the primary question is more about how servicers can tweak their strategic initiatives to adapt to market realities in 2023.
According to Dan, in the current high-interest rate environment, homeowners who are sitting on COVID-era rates of 3.25% are unlikely to go for refis. As homeowners hold on to their current mortgages, servicers will experience far less churn in their servicing stock.
Thus, their number one priority should be to service these loans as cost-effectively as possible.
Number two on their priority list:
Optimize the performance of their servicing portfolio.
Servicers should factor in Fannie, Freddie, Ginnie, and FHA loan volumes, as these have different risk profiles. And with the high chances of recession and possible defaults, servicers should prepare to manage defaults, foreclosures, and bankruptcy swiftly and compassionately.
Many non-banks and depositories that held onto MSRs in the past are selling off these assets to boost their non-origination revenue. This opens up opportunities for specialized servicers that are strong at boarding, processing, and managing bulk loans. Given the interest rate volatility, the window to purchase bulk MSR assets at favorable prices might be narrow.
That’s why servicers should quickly ramp up their loan boarding and portfolio QC capabilities with the help of automated document indexing and data verification platforms.
In a nutshell, servicers need to rebalance the risk profiles of their servicing stock, strengthen process capabilities such as loan boarding, QC, and customer service, and beef up default and foreclosure management in order to stay ahead of the curve.
How servicing fintechs stay relevant in a dynamic market
The success of the mortgage servicing industry is increasingly and inextricably linked to the tech platforms that support it, and servicing fintechs have to adapt quickly as servicers adjust to accommodate the market conditions.
So how do servicer fintechs like Sagent stay relevant and reliable as market conditions and servicer needs fluctuate?
First and foremost, customer advocacy. As Dan explains,
“Having strong customer advocacy is the key, but it’s a tricky nut to crack. You need a customer that really loves what you’re doing and is willing to do all the work to integrate you through all the barriers. The approach should be, ‘I’m going to help you, and it’s going to be for your benefit. Probably, you will benefit more than me, and that’s okay.’”
Without strong customer advocates, one becomes a sitting target for big players who can easily muscle you out.
Second, it’s about choosing the right customer. During the early stages, it is unwise to get stuck with large legacy customers. It becomes extremely difficult to service them at scale, and that (in turn) stops you from growing beyond that “customer of one.”
Finally, and most importantly, stay capitalized.
“Everything always takes longer and more capital than you think. So make sure that what you’re trying to solve, you have enough money to solve it and enough runway to get to where you want to go and be realistic about it.”
In the current high-interest environment, servicers and servicing tech platforms have a once-in-a-decade opportunity to grow together. With a deep understanding of servicer needs and challenges, fintechs can grow with their servicers and build the future of mortgage servicing together.
A version of this article first appeared on Vaultedge.com. Read it here.