Servicing income is a big piece of the profitability puzzle for banks, financial institutions and sub-servicers. As the mortgage market finally stabilizes after a period of low volumes and tight margins, many industry players are starting to realize the benefits of keeping their servicing portfolios in-house. Mortgage Bankers Association reported that independent mortgage banks with in-house servicing had seen the per-loan operating income rise to USD 366 in 2023.[1] This is significantly higher than in previous years. With 30-year fixed mortgage rates reaching their lowest levels in two years and re-financing activity picking up, retaining portfolios internally has become even more attractive.[2]
Retaining servicing in-house can positively impact profitability, as it allows institutions to capture the full spectrum of revenue generated from managing loans, including fees and interest. For instance, leveraging the right mortgage servicing software can service over 700 loans per employee, generating upwards of USD 726,000 annually in servicing fees alone, based on an average loan size of USD 414,900.[3] This doesn’t even account for additional revenue from late fees and insurance commissions.
More significantly, in-house servicing unlocks valuable cross-selling opportunities. With direct access to borrowers throughout the loan lifecycle, companies can offer complementary financial products that address customers' evolving needs, fostering increased sales. Beyond the financial benefits, handling servicing internally helps build and strengthen customer relationships, creating long-term loyalty. By engaging consistently, banks and financial institutions can establish themselves as trusted advisors, enhancing retention and overall customer satisfaction.
Elevating the In-house Servicing Game
When executed effectively, an in-house servicing model can significantly enhance efficiency and performance. By integrating advanced technology and streamlining operations, institutions can optimize workflows and respond more swiftly to customer needs, improving service delivery and satisfaction. This strategic approach allows for better oversight and control while fostering a culture of continuous improvement, helping enterprises adapt to changing market dynamics and maintain a competitive edge.
Embracing best practices across three crucial areas – staffing, processes and technology – is key to maximizing the impact of in-house servicing:
Staffing
Investing in team training and upskilling is essential for delivering high-quality customer service and complex back-office functions. This equips the staff to meet the bank’s / servicer’s operational compliance parameters and effectively reduce the risk of violations.
Process
Automating workflows enhances operational efficiency by reducing manual tasks, speeding up service delivery and minimizing errors. Implementing scalable digital platforms simplifies compliance tracking and workflow management while improving borrower communication. These systems provide real-time data insights, enabling lenders to manage larger portfolios efficiently.
Technology
Integrating digital tools allows institutions to lower operational costs and enhance service quality, ensuring profitability amid regulatory pressures. As scrutiny increases, automating compliance checks and reporting helps mitigate risk and maintain operational control.
Scoring Big with Strategic Partnerships
In-house servicing isn’t without its challenges. The process is labor-intensive, requiring lenders to maintain a sizable, licensed team for loan administration, customer service and compliance. Exacerbating the complexity, strict regulations drive up costs as teams must securely manage personal data and stay compliant with industry standards. Narrow profit margins often make it difficult for lenders to invest in the innovations needed to streamline these processes and improve efficiency.
This is where collaborating with a strategic service provider can create significant value. Partnering with a service provider that offers digital-first capabilities and cost-effective support can help lenders optimize mortgage servicing operations to deliver transformative results. Here are some of the major advantages of such partnerships:
Modern Software and Process Optimization
Strategic partners recommend and implement leading-edge software to automate workflows and improve operational efficiency, reducing manual tasks and errors.
Staffing and Scalability
Service providers handle staff recruitment, training and scaling, allowing banks to focus on core operations while meeting growing servicing demands without resource strain.
Compliance and Risk Management
By leveraging the expertise of service providers, banks and financial institutions can navigate the complex regulatory landscape more efficiently, reducing compliance risks and associated costs.
Cost Reduction through Automation and Global Delivery Models
Digital-first providers optimize workflows and offer global delivery models, significantly cutting operational expenses while maintaining service quality. Using the cost savings, institutions can re-invest in innovation, ultimately improving the borrower experience.
Flexible Pricing Models
With scalable pricing structures, industry players can adopt new solutions without heavy upfront investments, making it easier to implement essential changes while remaining cost-effective.
Enhanced Customer Experience
Faster service delivery, improved processes and scalability ultimately lead to improved customer experiences, helping organizations remain competitive in a rapidly evolving market.
Charting a Gameplan for Success
So, how can banks, financial institutions and sub-servicers effectively tap into the expertise of strategic service providers to elevate their in-house loan servicing? Here are five areas to focus on.
Deploy Workflow Automation
Streamline workflows across the value chain – from remittances to foreclosure support. Automating these processes reduces manual tasks and accelerates service delivery, allowing institutions to effectively meet customer needs.
Harness Data Analytics for Risk and Engagement
Utilize advanced analytics to gain insights into customer behavior and market trends to better engage customers, proactively address risks and stay ahead of the game.
Lean into Robust Compliance Support
Navigate the complex regulatory landscape with ease. A strategic partner can help ensure adherence to evolving regulations, allowing organizations to stay focused on core services without getting sidelined by compliance issues.
Integrate Advanced Technologies
Integrate state-of-the-art solutions into servicing platforms to automate critical processes – such as payment handling, customer communications and regulatory compliance – thereby enhancing back-end operational capabilities and front-end customer interactions. Integrating Intelligent Document Processing, Robotic Process Automation (RPA) and digital-first engagement tools reduces turnaround times and elevates the borrower experience.
Boost Training and Development
Build a strong bench by utilizing specialized staff from the service provider’s team to scale operations, rapidly adapting to changing customer demands and market conditions.
Mortgage servicing is highly labor-intensive, requiring a fairly large workforce to manage critical tasks. State-specific licensing requirements add to the complexity. However, many of these critical processes can be efficiently managed by a specialized service provider, including:
Figure 1: In-house mortgage servicing transformation in collaboration with a strategic partner
Many mortgage servicers face the challenge of low margins, making it difficult to allocate capital for innovation and transformation. Strategic partners are crucial in overcoming this hurdle by digitizing and transforming mortgage servicing, both front- and back-office operations. Processes like loan boarding audits, processing payoff quotes, loan modification system setup, escrow analysis, complaint intake and foreclosure referrals are ideal for transformation. The application of intelligent document processing, RPA and Artificial Intelligence (AI) can streamline these processes – driving efficiency and productivity, strengthening controls, reducing turnaround time, enhancing regulatory compliance, optimizing costs and improving customer experience.
Going the Distance
Keeping servicing in-house isn't just a strategic play; it's a key move in the game plan for sustainable growth and market leadership in the dynamic mortgage arena. Just like a winning team relies on cohesive strategies and teamwork, the future will belong to those who leverage innovation and enhance their operations through automation. By maintaining control over servicing and establishing strategic partnerships, institutions can drive cost efficiencies and innovation to adapt swiftly to industry shifts and deliver a winning borrower experience.
Explore further to discover how you can leverage effective strategies to maximize profitability and efficiency of your in-house mortgage servicing operations.