Dave Miller of Cenlar: Industry Outlook for Mortgage Servicing
David Miller brings 40 years of experience to Cenlar in strategic planning, loan servicing operations, project management and accounting and servicing systems. He built Cenlar’s Transfer Operations, Client Management and Business Development teams, and is responsible for all Business Development activities. He oversees Sales, Client Management, Marketing and Corporate Communications. He serves as a member of the Board of Directors of Cenlar Capital Corp., and is an active member of the American Bankers Association’s Mortgage Markets and Technology committee, a member of the Mortgage Bankers Association, and past chairman of the New Jersey League of Community Bankers.
The market has shifted dramatically in the last two years. With interest rates now above 7.5%, the refi boom has all but dried up. New loan production has fallen off and is down by two-thirds from the beginning of 2022. On the bright side for homeowners, the Mortgage Bankers Association reported that the delinquency rate at the end of the quarter went down to 3.64%, which is the lowest since their survey began in 1979. Not only is delinquency down, but foreclosures and bankruptcies are down, as well.
So what’s next for the industry?
Home Equity Lines Of Credit are becoming a much more viable product for homeowners. If a homeowner refinanced in the last two years, they probably refinanced down to a 3% or 4% interest rate. They don’t want to give that up and move into a higher interest rate. If money is needed to send a child to college or buy a new car, the path then is, often, to move to a HELOC.
Originators are ramping up their HELOC efforts to stay competitive in the marketplace even with the scrutiny of an ever-changing regulatory environment. So financial institutions that are either originating loans, servicing loans, or doing both, need to think about how to offer these HELOCs while still maintaining the regulatory and compliance obligations. More originators will look to partner with servicers that have the expertise to manage the regulatory and compliance requirements, which is undeniably the most critical factor to consider when choosing a servicer.
Managing the risk with a HELOC is no different than a mortgage. But there is a higher risk of fraud that comes with an open line of credit like a HELOC. A servicer should have a strong identity theft prevention program in place to help detect any strange activity on HELOC accounts.
The economics on Mortgage Servicing Rights have improved, and it’s been a good opportunity to cash in on the improvement in values. These MSR values provide an income stream that helps to offset costs to maintain the technology and administrative infrastructure created to manage the refinance boom that occurred during the last two years.
Mortgage bankers had a great opportunity to hold, retain and earn on the MSRs they held. Given the opportunities for those mortgage bankers to trade out their portfolios, servicers have also experienced a lot of activity transferring loan portfolios between sellers and buyers over the past year. In the past, we’ve seen mortgage bankers selling for tax purposes, typically around yearend, which is a kind of a natural transaction for many. Now, it’s becoming more opportunistic trades in the last year.
Mortgage lenders and servicers will continue to invest in technology to provide the very best customer experience for homeowners to ensure a more personalized, frictionless and proactive interaction. Self-service tools, such as bots and other digital tools will be offered to homeowners who seek quicker service and real-time updates to enhance the customer experience.
For example, at Cenlar, we continue to make progress on the digital front. We have changed our Interactive Voice Response system to let homeowners who call us know that they can self-serve at any time on the website. And our bots have bolstered our self-serve options, with an average of 108,000 homeowner interactions monthly – approximately 80% of homeowners who interact with one of our bots no longer need to speak with a live representative. Also, gathering data to analyze homeowners’ interactions will serve to hone in on the root cause of customer complaints. Using Artificial Intelligence, for example, will help to provide insight on what the homeowners’ pain points are to improve the homeowner journey.
These are some of the trends we are seeing. And while we don’t have a crystal ball to see the future, we will continue to watch the developments in the industry.
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