How the Pros Benchmark Mortgage Servicers
ORLANDO–So, mortgage servicer, how do you know you’re doing a good job?
Recent years have seen mortgage lenders and servicers forced to buy back millions of dollars in non-performing residential mortgage-backed securities. To avoid such scenarios in the future, mortgage servicers are taking extraordinary steps–and asking for third-party validation–in ensuring that their operations meet standards in both accountability and transparency.
William Fricke Jr., vice president and senior credit officer with Moody’s Corp., New York, said the agency’s assessment of servicer quality reflects both a qualitative and quantitative approach, involving site reviews of processes and evaluating results on key performance metrics based on a pool of seasoned loans. Moody’s then compares results to other servicers of similar products and assess whether results are sustainable.
“Most of the assessments are focused on the likelihood of default,” Fricke said here at the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo. “We’re trying to provide transparency to the marketplace. If you want to know how Moody’s feels about a particular servicer, you can see how the servicer stacks up against other servicers.”
Craig Martin, director and mortgage practice lead with J.D. Power & Associates, said while his company is best-known for its assessment of the automobile industry, its mortgage operations have been in place for more than a dozen years. He identified five best practices to measure customer satisfaction: eliminating unnecessary contacts; increased use of self-service; improved effectiveness of self-service solutions; ensuring first-contact resolution of “live” contacts; and reducing employee turnover.
“Benchmarking customer experience benefits everyone,” Martin said.
Matt Martin, director of HUD’s National Servicing Center of Single-Family Asset Management, said HUD has employed various metrics to assess servicer performance over the years. In 2007, HUD created the Tier Ranking System II program, piloted it in 2010 and went live in 2013.
“TRS I only evaluated the quantity of loss mitigation claims and forbearances reported,” Martin said. “TRS II evaluates servicer compliance with additional aspects of default servicing, including quality of loss mitigation, foreclosure processing and prevention, or default reporting.”
The TRS II model employs a four scoring elements to qualify for this type of compliance: Foreclosure Prevention; Re-Defaults; Single-Family Default Monitoring System reporting; and Loss Mitigation Engagement. Martin said since going live in 2013, overall scores have improved, particularly in Loss Mitigation Engagement. He said room remains improvement.
“The majority of servicers still have a strong work-out ratio, a ratio of loss mitigation claims to conveyance claims, which was the entire TRS score before TRS II,” Martin said. “We have found that some servicers are doing the Loss Mitigation Engagement work, but not reporting this to HUD; we have also found that some servicers are not actively attempting to engage the borrower early in the delinquency process.”
Caroline Patane, vice president of servicer reviews and measurements with Fannie Mae, Washington, D.C. said the company’s Servicer Total Achievement and Rewards (STAR) Program provides standardized metrics and trend reporting; qualitative operations assessments that provide market intelligence and best practices; and consultative engagements to help them understand best practices. A scorecard is provided to customers on a monthly basis through a self-access portal.
“The self-access portal also allows customers to compare themselves with their peers in the business,” Patane said. “They can see where they are outperforming their peers or see where they need to improve their practices.”
Patane said Fannie Mae has seen several performance trends over the past several years. Top servicers, she said, are dedicated to the borrower experience; have reporting structures in place to effectively process delivery; and optimize technology to support key functions.
