BSI Financial Services’ Allen Price: How Digital-First Subservicers Are Revolutionizing Servicing

Allen Price, SVP at BSI Financial, is a mortgage industry veteran with more than 20 years of experience in the primary and secondary markets. At BSI, Allen focuses on loan subservicing, QC, and mortgage servicing rights (MSR) acquisitions while overseeing Marketing, Transaction and Client Management.

While mortgage origination has experienced massive improvements through digital technology, the same has not always been true for the servicing side of the business. On the whole, mortgage servicers are not typically known for being particularly innovative or technology driven. Part of the reason is that servicing loans has traditionally been a rather complex and labor-intensive process that requires significant resources to manage and maintain.

Recently, however, new developments are starting to change this picture.

One development is the increasing migration away from in-house servicing to outsourcing components to experienced third party subservicers.

At the end of 2018, the Federal Reserve reported $2.47 trillion out of $10.337 trillion in mortgages, or 24%, were subserviced. In 2021, according to Inside Mortgage Finance, total subservicing accounted for more than $4 trillion. And despite a severe drop in origination volume, subservicing volume rose to $4.16 trillion by the first quarter of 2023, or 30.7% of all outstanding loan volume, the publication reported.

With an increase in third-party subservicing and the rise of new digital servicing platforms used by more forward-thinking subservicing partners, these trends are not just making the nuts and bolts of servicing loans easier. They are also changing the way that mortgage servicers interact with borrowers, streamline processes, improve a servicer’s overall efficiency and improve customer retention. Here’s how they’re doing it.

Leveraging the Power of AI

Unfortunately, most mortgage servicers rely on older technology platforms that haven’t kept pace with innovation. These outdated systems often lack the flexibility, functionality and automation that servicers need to operate more efficiently while keeping up with changing market conditions and regulatory requirements. Rather, they require servicers to rely on manual input and processing, which can cause delays and errors.

Unless a servicer has the resources to build its own technology–which many do not–they are stuck with the limited functionality of their existing systems. On the other hand, there are subservicers available that have made these digital servicing platforms their focus and are able to quickly turn a servicer’s operations around.

Lenders and servicers have the option to outsource certain components or all of their servicing operations to this new breed of subservicers who have placed a focus on technological innovation. Some of these subservicers have built new, digital servicing platforms using modern technology, including advanced automation and artificial intelligence technology, which reduces the need for manual labor and human intervention.

For instance, there are digital-first subservicers that are using AI algorithms to analyze borrower data and identify patterns or trends in a borrower’s payment patterns that might indicate the potential for default. Having these tools can help the subservicer and its servicer client identify at-risk borrowers earlier and take proactive steps to prevent foreclosure.

Improving Security and Lowering Costs

If you stay on top of industry headlines, you’ve probably read about the recent data breaches that affected several large servicers. These events typically don’t happen among subservicers that use newer digital servicing platforms. Such platforms typically provide much better privacy protection through advanced encryption and data security protocols, which enables servicers to avoid costly legal or regulatory penalties.

Perhaps the most significant advantage of leveraging today’s digital servicing platforms, however, is the ability to reduce overall servicing costs. Traditional servicing processes take up significant resources, including staffing, office space and IT infrastructure. But with digital servicing platforms, many of these costs can be significantly reduced if not eliminated entirely.

For example, digital servicing platforms can automate many routine tasks, such as data entry and payment processing. This empowers mortgage servicers to focus their resources on more complex or value-added activities. That includes borrower outreach and counseling–activities which will increase in volume if mortgage defaults rise in the future, which a growing number of market observers believe is likely.

In areas where servicing work can be done through remote staff, digital servicing platforms can also reduce a servicer’s need for physical office space and IT infrastructure, as much of the servicing process can be managed online or in the cloud. Overall, these cost savings can help mortgage servicers improve their profitability and reduce the cost of servicing borrowers.

Happier, More Loyal Customers

Another benefit of digital servicing platforms is their ability to improve the individual homeowner’s experience. By providing borrowers with a more convenient and accessible way to manage their mortgage payments and account information, these platforms can improve borrower satisfaction and reduce borrower stress.

Of course, most borrowers by now are able to log onto their servicer’s website, access their loan information online and make payments. But because today’s digital servicing platforms are built with advanced technology that leverages data analytics and machine learning algorithms, they can provide self-service portals that are more intuitive to navigate as well as more personalized and responsive to an individual homeowner’s needs.

For example, based on a borrower’s past communications and behaviors, digital servicing platforms enable servicers to provide customized guidance and advice to help the borrower manage their mortgage payments or find options to avoid default. This can include tools and resources for budgeting and financial planning, as well as targeted outreach and counseling for at-risk borrowers. This level of support allows servicers to help borrowers overcome their financial challenges and achieve their homeownership goals.

Finding the Right Partner

In a 2021 report on “Five trends reshaping the US home mortgage industry,” McKinsey & Co. provided some interesting stats about how smaller subservicers have gained substantial traction in recent years. In fact, while servicing volumes increased substantially between 2017 and 2021, in-house servicing actually decreased while subservicing volumes as a percent of amount of unpaid principal balances grew from 18% of overall volume to 32%.

Meanwhile, a January 2023 article from Ernst & Young, “Evaluating servicing models in the face of industry headwinds,” noted that cost considerations are prompting more organizations to select the subservicing approach.

Yet there is a significant gap among subservicers that are leveraging digital-first platforms and those that have not placed a focus on innovation. It’s incumbent on every lender and servicer deciding whether to outsource or “insource” components of their servicing operations to make sure they choose their subservicing partner carefully. As author of “Rich Dad, Poor Dad” Robert Kiyosaki once said, “Finding the right business partner is just as important as finding the right spouse.” For servicing organizations, finding a subservicing “spouse” that leverages innovation and digital-first solutions to lower costs, protect borrower data and enhance customer retention is likely to provide years of marital bliss.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney)