Disruptive Subservicing: Learning Tomorrow’s Lessons from Companies Challenging the Status Quo

(Chris Sabbe is senior vice president of strategy and business development with LenderLive Network Inc., Denver, a mortgage services provider. To learn more, visit www.lenderlive.com/ls.)  

Why do we put up with things in our business lives that we wouldn’t stand for in our personal lives?  

Think about it. We shop for the best cell phone deals; we cut the cord from cable providers in favor of streaming services like Netflix and Amazon; and we vote with our feet when we encounter bad customer service.  

But when it comes to major business decisions, like choosing a subservicer, we often meekly accept the same terms, service levels and extra add-on fees that have been the status quo for decades. There are even signs subservicing is moving backwards in terms of customer experience. Recently, we heard one brand-name subservicer is telling its clients to email all questions to a general inbox, rather than speak to their account rep. Why don’t we seek out other options?  

While we’ve upgraded to Google Maps to get us to where we’re going; we’re more than comfortable with Netflix’s recommendation engine to suggest a movie or TV show; and Uber has now become a widely accepted form of transportation, we continue to rely on green-screen technology and “one size fits all” subservicers to manage billions of servicing portfolios that vary dramatically from one organization to the next. Why the complacency to not seek out a better solution?  

Our guess is that most investors aren’t even aware they have options outside of the brand-name subservicers who have been in the business forever. Compound this with a common perception that switching to a new subservicer requires a lot of internal time and resources: people, paperwork, IT, training, etc. (like converting LOS platforms or becoming TRID compliant). This is simply not the case.  

It’s not as easy as moving your 401K or transferring data from your old cell phone…but changing subservicers is much easier than most investors think. Firms like ours do all the heavy lifting in transitioning clients to a subservicing model. We work directly with the exiting subservicer to map all the data & documents, but more importantly, we invest the time to really learn our clients’ businesses and design customized solutions to best engage with their borrowers. Depending on volume, a new, tailor-made servicing solution is rolled out within 60-90 days.  

Of course, this is just one facet of the movement that is reshaping the industry one investor at a time: “disruptive subservicing.”  

Disruptive subservicing borrows from the playbook of new tech companies using innovation to turn an industry on its head (think: taxis/Uber, music/iTunes, lodging/AirBNB, etc.)  

Disruptive subservicers believe in complete transparency around data, reporting and economics and have a uniquely collaborative relationship with their clients. Learning each and every client’s business–as opposed to offering a generic solution–is what resonates most often. Clients are encouraged to “look behind the curtain” to see how their borrowers are being serviced in real time. Investors can look at collections notes. Oversight managers can see how a customer service rep interacted with a borrower regarding their loss mitigation options. And investor management teams receive every data element on every loan on a daily basis–at no additional cost.  

All of this is critical, not only for clients, but for the regulators and auditors validating servicer oversight plans, as their job is to make sure the Consumer Financial Protection Bureau, the government-sponsored enterprises and other guidelines are being followed to a T. That’s disruptive subservicing–it’s what investors are embracing, borrowers are appreciating and what auditors and regulators are demanding.  

Compare this with the way traditional subservicers operate. Generally speaking, they work on closed-end platforms. Producing data and reports is often accompanied by an additional invoice. And monthly remittances can contain hundreds of line items, spanning dozens of pages, making it difficult to reconcile and validate.   Some traditional subservicers have even tried to erect barriers to keep their clients from leaving–by charging expensive de-boarding fees or requiring prohibitively long timeframes to cancel their contracts.  

The new generation of subservicers offers their investor clients open-ended contracts and are more willing to compete on service levels via performance-based pricing models. Investors are no longer locked into long-term contracts and can walk away if their business model changes or they find a better provider. The concept isn’t new. It’s simply another way to better serve the market and shift control back to the client.  

Can subservicing be disrupted by new thinking, fresh ideas, and open technology? In the past 18 months, our team has tripled capacity and experienced unprecedented demand. So perhaps, in this post-crisis era, being an established player no longer holds the advantage it once did-as the market is clearly craving flexibility, speed and innovation to adapt to all the new regulations.  

Creating a simpler, more personalized solution is how Netflix disrupted the establishment (just ask Comcast, Time-Warner or even Blockbuster). The question is: How quickly can disruptive subservicers transition from attracting early adopters to becoming the mainstream? Netflix has only been around two years longer than our organization, so it may be closer than you think.  

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at msorohan@mortgagebankers.org.)