Retained Servicing: an Essential Independent Mortgage Bank Strategy

NASHVILLE–For the past couple of years, it’s been good to be an independent mortgage banker.  

Mortgage Bankers Association data show production and profits for IMBs are up and costs are down compared to their larger cousins. “It shows that IMBs have the ability to be much more nimble,” said Seth Sprague, CMB, senior vice president with Phoenix Capital Inc., Denver, here at the recent MBA Independent Mortgage Bankers Conference.  

Given the combination of the current production environment, including costs to originate, cost to service and oversight requirements of the servicing operation, for IMBs, bankers said the ability to hold and invest in the annuity of servicing cash flows is constantly being tested.  

Albert Blank, president of Union Home Mortgage, Strongsville, Ohio, said retained servicing is a key part of his company’s overall growth plans. “Servicing is our profit margin,” he said. Profitability is the key to retain servicing, for us and everyone else. If you can’t contain your costs, then you can’t retain servicing.”  

Blank said retained servicing represents a strategic decision. “Retaining servicing plays an important role in our organization, but it is very capital-intensive,” he said. “You need several strategies for success, such as having a good flow partner.   Some agencies have angst about flow partners, but Blank said without its flow partner, “it would result in strong restrictions for independent mortgage bankers for competing in the servicing marketplace.”  

Bruce Carr, executive vice president of Michigan Mutual Inc., Southfield, Mich., said his company has engaged in TPO strategies since 2007.  

“We retain about 25 percent of what we originate,” Carr said. “Being an independent has advantages and disadvantages. Even if we wanted to retain 100 percent of our servicing, we couldn’t. But we can also take a very long-term strategy toward and asset, and if there are short-term obstacles, we can overcome them.”  

Keith Klein, executive vice president and COO of Prime Lending, Dallas, said his company has retained some servicing since 2013, limited at first to smaller lines of credit, then to conventional mortgage loans; today, it limits itself to $5.2 billion in retained servicing. It gets pricing from a third party as well, and also works with a sub-servicer.  

“It gives us the flexibility to manage our servicing portfolio, whether to add servicing or sell some of our portfolio,” Klein said.  

“One thing we do is take advantage of the MBA Peer Group Roundtables,” Carr said. “It enables us to analyze data and make decisions as to when to retain servicing and went to sell.”  

“We know the communities we serve incredibly well,” Blank said. “We are trusted in good times and bad times. That stability in the marketplace gives us stability in volume, even in tight times, which gives us an advantage over larger banks.”  

“Mortgage servicing is like owning a boat,” Blank added. “There are two days when you love servicing–the day you buy it and the day you sell it.”