A Winning Combination: In-House Servicing with API Automation. Sponsored Content from FICS
By Susan Graham, President and Chief Operating Officer, FICS
As the mortgage market reaches the fourth quarter of 2024, industry analysts are cautiously optimistic about the future of home sales. Forbes reports that mortgage rates have been steadily cooling off, fueling optimism. They report that the average 30-year fixed mortgage rate has been below 7% since the beginning of June, reaching its lowest levels since February 2023 at 6.09% in Mid-September (https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/) following the 50 basis point cut by the Federal Reserve.
The lowering rates and hopes of an additional rate cut before the year’s end are encouraging buyers to reenter the market and owners to consider refinances. However, many lenders who sold their Mortgage Servicing Rights (MSRs) in 2023 to enhance liquidity may be disadvantaged as refinancing activity picks up.
Retaining MSRs and leveraging in-house servicing can give mortgage lenders a distinct advantage in a competitive market. From improving customer satisfaction and retention to boosting revenue, in-house servicing offers numerous benefits. Coupled with modern mortgage servicing software and Application Programming Interfaces (APIs), lenders can streamline operations, enhance compliance, and maximize profitability.
The Value of Retaining Mortgage Servicing Rights (MSRs)
Many lenders opted to sell their MSRs to generate short-term liquidity, particularly during market stress. While this can provide a temporary financial boost, it comes at a cost. Retaining MSRs offers long-term value through consistent servicing fee income and helps build stronger relationships with borrowers.
Additionally, retaining in-house servicing instead of outsourcing it to another company, helps lenders maintain control over the borrower experience, ensuring higher levels of trust and satisfaction. When servicing is outsourced, the quality of communication and customer service is beyond the lender’s control, potentially weakening the relationship with borrowers.
In-house servicing also allows lenders to maintain direct access to their borrower base. This opens opportunities for cross-selling other financial products, such as insurance, home equity loans, credit cards, or deposit accounts. By maintaining these relationships, lenders can create a long-term revenue stream from customers familiar with their brand.
Revenue Generation Through In-House Servicing
In-house servicing not only preserves relationships but also generates significant revenue. Well-trained servicing teams equipped with the right software can handle a substantial volume of loans per employee. For instance, each servicing employee can manage 700 or more loans. Considering the average loan size of $393,000 in September 2024 and a standard servicing fee of 25 basis points, that translates to over $687,000 in annual service fee income per employee (https://tradingeconomics.com/united-states/average-mortgage-size). Late fees, commissions on optional insurance, and other ancillary services can further enhance profitability.
Moreover, by keeping servicing operations in-house, lenders can provide value-added services to their borrowers, such as insurance products or home improvement loans. These offerings diversify revenue streams and strengthen the lender’s relationship with borrowers, positioning the lender as a trusted advisor throughout the homeownership journey.
Leveraging APIs for Efficiency and Compliance
One of the primary challenges of in-house servicing is ensuring efficient operations while remaining compliant with ever-evolving regulatory requirements. This is where modern mortgage servicing software and APIs come into play.
Borrowers today expect quick and seamless service. JD Power’s 2024 Mortgage Servicer Satisfaction Survey found, “mortgage servicer efforts to improve digital experiences and streamline problem resolution have helped drive incremental improvements in customer satisfaction.” (https://www.jdpower.com/business/press-releases/2024-us-mortgage-servicer-satisfaction-study) APIs enable seamless communication between platforms, including mobile apps, third-party software, and servicing systems. This interconnection allows mortgage servicing professionals to work more efficiently and deliver faster, more accurate services to their clients. APIs automate tasks and data exchange, removing the need for manual interventions.
FICS’ Mortgage Servicer® API enables the automated execution of tasks, including end-of-day and end-of-month processes, investor reporting, monthly loan statements, and many other third-party system interface programs. Once the job is completed, the API alerts the IT team of its successful execution.
Simplified Investor Reporting and Compliance
In addition to improving operational efficiency, modern mortgage servicing software simplifies investor reporting and helps ensure compliance with regulatory requirements. Servicers are required to submit detailed payment and default activities to government-sponsored enterprises (GSEs) and other investors. This reporting must adhere to strict guidelines, and discrepancies can result in costly penalties.
Top-tier servicing software platforms are equipped to handle all industry-standard reporting methods, ensuring servicers remain compliant while minimizing the risk of errors. For example, FICS’ Mortgage Servicer® offers comprehensive reporting capabilities, including reconciliation, delinquency, prepaid, and remittance reports. The software also automates the advance and recovery of Principal and Interest (P&I) and Taxes and Insurance (T&I), reducing the need for manual tracking, calculations, and data entry.
Building a Competitive Advantage
Lenders must find ways to differentiate themselves in today’s competitive mortgage market. By retaining MSRs and servicing loans in-house, lenders can boost customer satisfaction and generate significant revenue through servicing fees and cross-selling opportunities. Modern mortgage servicing software and APIs also streamline operations, enhance compliance, and reduce costs.
Moreover, the best servicing software provides lenders full access to their loan data, allowing them to extract data or build customized reports based on their needs. This flexibility is essential for lenders who require tailored reports to manage a unique portfolio. With access to data in various formats, servicers can easily share information with other software systems or migrate data to a new platform if necessary.
As the market continues to evolve, more institutions recognize the value of in-house servicing and invest in the necessary technology to support these efforts. By keeping servicing operations under control, lenders can build stronger relationships with borrowers, create long-term revenue streams, and ensure they are well-positioned to compete in an increasingly digital marketplace.
For mortgage lenders looking to gain a competitive edge, in-house servicing is not just a strategic option—it’s a necessity.
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Susan Graham is the president and COO of FICS® (Financial Industry Computer Systems, Inc.), a mortgage software company specializing in cost-effective, in-house or cloud hosted mortgage loan origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, housing agencies, credit unions, and banks. FICS® has delivered exceptional automation, performance, system support, and value for more than four decades. FICS’ software uses Microsoft .NET Framework and provides document management, API, and web-based capabilities in its full suite of products. For more information, visit www.fics.com.
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(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)
