Why Retaining Servicing Remains Critical in 2025’s Evolving Mortgage Market (Sponsored by FICS)

Susan Graham is President and Chief Operating Officer, FICS

Managing a profitable mortgage business remains challenging as lenders try to navigate a market that is unsettled. While the Mortgage Bankers Association forecasts a 28% increase in origination volume to $2.3 trillion this year, lenders still face headwinds from elevated borrowing costs and constrained affordability. Mortgage Servicing Rights (MSRs) remain valuable assets in this environment, providing steady income streams when origination volumes fluctuate.

Whether servicing loans held in portfolio, sold with servicing retained, or acquired through MSR purchases, mortgage servicers must leverage every available tool to expand borrower relationships and maintain their servicing portfolios. The combination of servicing retention and modern servicing software creates a competitive advantage beyond simple fee income.

The 2025 Mortgage Landscape: Opportunities Amid Challenges

The mortgage market has evolved significantly since the dramatic rate increases of 2022-2023. Current 30-year fixed mortgage rates hover around 6.6% as of August 2025, down from peaks above 7% but still well above the 2.65% average of 2021. While Fannie Mae projects rates could decline to approximately 6.3% by year-end, they remain elevated enough to substantially suppress refinancing activity.

This rate environment presents both challenges and opportunities for servicers. The reduced refinancing business means portfolio runoff from rate-driven refinancing is minimal. This is a stark contrast to the previous decade, when historically low rates drove frequent refinancing. However, the market has adapted with new product innovations that servicers must be prepared to handle.

Adjustable-rate mortgages exemplify this shift. ARM market share has increased to 9.6% of mortgage applications, the highest level since November 2023. This demonstrates how originators are using product innovation to help borrowers navigate higher-rate environments.

Similarly, low-down-payment programs continue to gain traction as originators help borrowers overcome affordability barriers. The average home purchase price reached $512,800 in Q2 2025, making these alternative financing options increasingly important for market access.

The Financial Case for Servicing Retention

The economics of mortgage servicing remain compelling. A well-trained staff equipped with modern servicing software can service 700 or more loans per employee. Using current market data—the Q1 2025 average purchase price of $512,800 and standard servicing fees of 25 basis points—each servicing employee can generate approximately $897,000 in annual servicing fee income alone. Ancillary income from late fees, insurance commissions, and other services further enhance profitability.

Beyond direct servicing income, retained servicing creates invaluable cross-selling opportunities. These existing relationships provide natural channels for marketing additional products, including credit cards, auto loans, investment products, and insurance. When appropriately executed, servicers become trusted financial advisors to homeowners, positioning themselves to offer asset protection products, home improvement financing, and maintenance services.

Customer Experience: The Hidden Competitive Advantage

Data consistently shows that strong communications improve customer relationships. According to J.D. Power’s 2025 Mortgage Servicing Report, service quality and responsiveness are potent customer loyalty and retention drivers. Customers cite better/improved customer service (51%), easy access to loan information (36%), and flexible ways to make a mortgage payment (27%) among the top reasons to switch mortgage companies.

Modern servicing software addresses this challenge by enabling superior customer experiences. Self-service borrower web applications allow customers to access loan information, view statements, and make payments 24/7. These digital tools reduce call center volume while significantly improving satisfaction scores. Real-time data access ensures staff and borrowers can view current information instantly, enabling faster problem resolution and enhanced service quality.

Software as the Great Enabler

FICS’ Mortgage Servicer^® software transforms what was once a labor-intensive, error-prone process into a streamlined, automated operation. Key technological capabilities that drive competitive advantage include:

• Automated Investor Reporting: For lenders servicing loans for GSEs and other investors, meeting strict reporting requirements is non-negotiable. FICS’ modern servicing software automates daily and monthly funding requirements, produces reconciliation and remittance reports, and handles Principal & Interest and Taxes & Insurance advances and recoveries. This automation reduces compliance risk while freeing staff for higher-value activities.

• Comprehensive Escrow Management: Accurate escrow management is complex but critical. Mortgage Servicer software automates initial, annual, and final escrow analyses, tracks payments and disbursements, processes interest on escrow accounts, and integrates seamlessly with tax service providers. This automation dramatically reduces compliance risk and manual processing time.

• API-Driven Integration: Perhaps most importantly, Application Programming Interfaces (APIs) enable seamless communication between different software applications, creating unified workflows that maximize efficiency. Mortgage Servicer APIs automate routine tasks, including data entry, payment processing, and regulatory reporting; reducing human error while improving operational efficiency. For example, API integration can automate end-of-day and end-of-month processes, delinquency management, and loan reconciliation. This automation allows servicing staff to focus on complex issues requiring human intervention rather than repetitive manual tasks. APIs also enable real-time data sharing across platforms, ensuring all systems maintain current borrower information. This capability is essential for regulatory compliance and superior customer service, as staff can access complete, up-to-date borrower profiles instantly.

• Regulatory Compliance Automation: Servicing software continuously updates to accommodate changing regulations. For example, Fannie Mae has announced a multi-year initiative that will include event-based reporting in near real time along with an expanded set of data attributes that align with MISMO (Mortgage Industry Standards Maintenance Organization) data standards for various servicing events. Servicing software can ensure lenders always have the most up-to-date workflows and remain compliant without manual intervention.

Looking Forward: Servicing as Strategic Asset

As the mortgage market evolves in 2025, servicing retention becomes increasingly strategic. However, success requires more than simply retaining loans; it demands delivering exceptional experiences that build lasting customer relationships.

Combining retained servicing and modern servicing software like FICS’ Mortgage Servicer creates sustainable competitive advantages extending well beyond current market cycles. Institutions that invest in servicing retention and supporting modern software platforms position themselves to capture the full lifetime value of customer relationships while building resilient, profitable businesses.

In today’s challenging mortgage environment, servicing isn’t just an operational necessity; it’s a strategic differentiator that separates market leaders from followers. The question isn’t whether lenders can afford to invest in modern servicing capabilities, but whether they can afford not to.

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Susan Graham is president and chief operating officer of FICS (Financial Industry Computer Systems Inc.), a mortgage software company specializing in mortgage origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, housing agencies, banks and credit unions. FICS^® has delivered exceptional automation, performance, system support, and value for more than four decades. FICS’ software uses Microsoft .NET Framework and provides document management, API, and web-based capabilities in its full suite of products. For more information, visit www.fics.com.

(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)