Yesterday, I participated in a panel on the “new normal” at the Mortgage Bankers Association conference. At least three quarters of the session addressed the harsh reality of the expense structure that exists in loan servicing today.
But what wasn’t discussed, at least in any great detail, were innovative solutions to dilemmas we are all facing.
According to my fellow panelists, the compliance burden and need to add additional controls and oversight tripled compliance expense over the last couple of years.
At the same time, the revenue has been flat and in some cases we have even seen compression in the top line as the bid for MSRs increased.
The panelists — four leaders from four nonbank servicers with very different strategies, niches, size and focus — produced a lively give-and-take.
But there was general agreement that the current economic model is tough (to put it mildly) for a new servicer, and it might be impossible for a new mono-line single-focused platform in today’s environment.
What’s impacting top line revenue is the ever-changing focus on compliance as well as a need to provide better, faster and free services to the consumer. Meanwhile improving loan performance has become something of a two-edged sword as ancillary fees have significantly decreased as well as other revenue-producing opportunities.
For the past five years, we, as an industry, have been focused on remediation for non-performing loans that came out of the mortgage melt down and then getting ready for the Consumer Financial Protection Bureau.
Both challenges have been daunting.
Before things started to go bad back in 2007, the newer servicing entrants were gearing up to deliver better servicing solutions.
Innovation, new thinking and technology were being applied — or at least discussed — as ways of improving different aspects of serving and staffing.
For the most part, the verdict is still out on these creative ideas, because the new entrants that proposed them have had limited success in the market and some didn’t survive.
Meanwhile the rest of the industry has been 100% focused on ensuring compliance with CFPB and other regulatory and investor changes.
They’ve been so busy throwing bodies and dollars at these challenges that they haven’t gone back to see if any of the out-of-the-box, pre-Meltdown ideas are worth revisiting.
It will probably take some time before we get it right and we as an industry fully understand what works and how things are going to be interpreted.
Of course, we have to be fully compliant, focused on the customer and continue to strive for a zero-defect solution to a complicated and large market.
In the long run, for the economic model to work, we will have to get back to inventing better and more efficient ways to deliver service and compliance to the consumers we serve.
Typically, they don’t choose who services their loan. So it is not their issue — or the regulators — that our compliance costs have increased three-fold and the revenue has dropped.
It is up to us to get our creativity off hold…again.
