ServiceMac’s Bob Caruso: Take Advantage of a Heightened MSR Purchase/Transfer Market

Bob Caruso is CEO of ServiceMac LLC, Fort Mill, S.C., a wholly owned subsidiary of First American Financial Corp. To learn more about the company, visit firstam.us/about-servicemac.

Three Fundamental Steps to Planning, Assessing, and Managing Your Portfolio Growth Strategy

As interest rates remain high and the long-term market outlook is uncertain, lenders are evaluating strategies to strategically grow their mortgage portfolios. As a result, many organizations are selling off portfolios to aggregators, which has led to a heightened level of mortgage servicing rights (MSR) purchases and transfers. For lenders looking to purposefully grow their mortgage portfolios, the increase in MSR activity presents a unique opportunity.

If your organization is considering taking advantage of this heightened MSR market as part of your growth strategy, here are three fundamental steps to execute against as part of your plan for purchasing portfolios.

Plan Your Long-Term Portfolio Growth Strategy

Looking at the risk profile of your current portfolio and identifying the goals of your growth strategy is a critical first step in developing a successful long-term growth plan. Is it more important that your organization maintain the same risk mix, or are your goals more focused on maximizing revenue and profits? Keep in mind that a greater emphasis on maximizing revenue and profits may entail incorporating more risk with the purchased MSRs compared to what your organization has historically owned and managed. Be sure you have a plan in place for navigating the heightened level of risk, such as increased training and customer service team size, investing in automation and technology to support those teams, or partnering with subservicers that specialize in borrower resolution for higher-risk loans.

Once you’ve identified your goals, develop a plan for acquiring those portfolios. There are numerous factors that you need to examine and weigh when considering which portfolios align with your strategy. Look for clues in the loan characteristics of your current portfolio and explore factors that may be part of portfolios that you’re considering, such as loan vintages and reperforming loans.

For example, some portfolios might consist of loans that were originated in the last 24 months, while others might include loans that are largely upwards of 10 years old. Analyze the loan vintages in your current portfolio and look for any tell-tale anomalies, such as some vintages performing better than others. If this is the case, that could be a factor you want to consider when determining what type of portfolios to purchase.

After acquiring a portfolio with the type of risk profile and loan characteristics that align with your organizational goals, allow a period of servicing to ensure that they’re performing as you’re expecting. If they do, that’s a good indication that you can continue to purchase portfolios with that same mix of risk profile and loan characteristics.

Assess the Risk and Fit of Your Purchased Portfolio Loans

Whether you’re considering a portfolio with 1,000 or 100,000 loans, you must assess these MSR assets both at the loan level as well as at the portfolio level.

At the micro level, be sure to set the parameters for the loans that your organization is not equipped to service for the long run. For example, how long does a reperforming loan need to have been current to be a good fit? More than six months? More than twelve? There are servicers that specialize in reperforming loans that may be better equipped to support the needs of those borrowers through specialized automation and technology. Consider bundling those loans that are outside your comfort zone to sell as an MSR portfolio.

One of the ways that ServiceMac identifies loans at risk is through its proprietary platform, Sentry360™, which has over 1,900 automated rules. We run every rule, every day, against every loan in our portfolios that we subservice. If a borrower misses a payment or other abnormalities are identified, the loan is flagged and assigned to a specialized team who analyzes the failed rule and confirms what appropriate action is needed.

We’re also able to provide quick resolutions to borrowers who call ServiceMac for assistance when they’ve fallen behind on their payments. Our system is equipped with a rules engine that queues up the best option available for that borrower based on their unique situation, allowing us to provide peace of mind to the borrower and get them back into a performing status quickly.

The result is a better customer experience for the borrower and a more proactive process of risk management on behalf of the investor.

Managing Your MSR Assets

When assessing the pros and cons of servicing your new MSR assets in-house versus partnering with a subservicer, there’s a lot to consider.

The lift on the part of your in-house servicing team can be heavy. Consider the increased labor costs, the need for continued review analysis and assessment of the portfolios, working with borrowers and fielding questions, accepting payments, paying out on items in escrow accounts, like property taxes and other assessments owed against the property, etc. – the list goes on.

On the other hand, some lenders may be hesitant about their borrowers’ experience becoming confusing if their loan is passed from one servicer to the next.

One of the unique ways ServiceMac works with its clients is to facilitate and support the client’s ability, at their option, of performing their own customer service on the loans we manage on their behalf. In conjunction with private label or white labeling, it allows the originators of the loan to stay closer to the customer.

We’ve found that these small adjustments help the borrowers feel more comfortable with the transition and have confidence that the new servicer is representing the lender. As a subservicer, our ultimate goal is to provide outstanding service with faster resolution times, while providing lenders and servicers options that align with their goals and priorities.

Look At All the Options, Choose Wisely and Grow

There’s much to consider when planning, assessing, and implementing an effective road map for growth in the current MSR market. Knowing your optimum level of risk, assessing the new portfolio, and determining what loans to service in-house are all key to a successful strategy. The MSR market can be overwhelming and complicated – it’s important to seek out a strategic partner that can help you navigate the complexities.

MSR buyers should have a strong plan in place where they maximize the duration of their MSR assets by working with their subservicer to identify customers most at risk for refinancing, cash out, home equity, or buying a new home. As part of this process, the MSR buyer can also opt to allow the originator to manage borrower retention on behalf of the MSR buyer.

At ServiceMac, we’re committed to being more than just a subservicer to our clients. With value-add solutions, such as our upcoming Exchange program, which helps originators and MSR buyers confidently transact and optimize their positions for future growth, we’re helping our clients meet their goals today and in the future.

(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.)