Paul Anselmo: The Increasing Value of Outsourcing During Market Shifts

Paul Anselmo is CEO and founder of Evolve Mortgage Services, a provider of outsourced mortgage platforms. He has more than 30 years of experience in the banking and mortgage industries. Previously he served as president, CEO and founder of Mortgage Resource Network (MRN), a business process outsourcer and technology provider to the mortgage industry. In 2019, Paul was honored as a “Lending Luminary” by the PROGRESS in Lending Association.

(This is part one of a three-part series, “Switching Gears,” examining how three executives–Paul Anselmo of Evolve Mortgage Services; Michael Franco of SitusAMC; and Nate Johnson of SLK Global Solutions–plan to transition employees from loan production to mortgage servicing once the refinance boom ends and forbearance cases need to be solved.)

Once again, it seems we’re headed for another record year for mortgage originations. Mortgage rates seem likely to remain near historic lows for some time and lenders are still flush with volumes and dealing with capacity issues. Meanwhile, the expectation that the COVID-19 pandemic will eventually create a massive wave of default activity has been pushed back as the federal government continues to extend foreclosure moratoriums and the availability of forbearance.

At some point in the future, however, it’s inevitable that the market will shift—and it’s not too soon to prepare. And just as outsourcing has helped many originators overcome unprecedented capacity issues while volumes are high, it may again prove to be the best strategy for organizations transitioning to the next market environment.

When and How the Market Will Shift

To be sure, these are historic times in terms of loan volume. I’ve been in the industry more than 20 years, and lately every year seems to be a record year. Clearly, if you’re an originator and you’re not making money, you’re in the wrong business. And it’s likely to stay that way through most of 2021. Rates aren’t going anywhere for a while, I believe, and alternative lending continues to increase. My company is extremely busy with non-agency loan work, and between the expiration of the QM patch and new products coming onto the market, we expect a lot of activity.

These trends have created a ton of work for underwriters and are a big reason why good underwriters are in such short supply today. Over the past year, we’ve hired more than 150 underwriters, and we could hire another 150. Because of the shortage, re-engineering was necessary and breaking out tasks like income calculations, credit or appraisal reviews allowed us to squeeze more and more out of a single underwriter this year. That’s not to say an underwriter’s role hasn’t grown along with the dynamics of the market. At this time last year, underwriters were looking to close loans. Today, they are looking to “unclose” loans and refinance borrowers. But what happens when the market undergoes a more fundamental shift?  

To be sure, as the spread of COVID-19 slows and people go back to work, there will be borrowers who will not be able to recover financially. This may not happen for a while, as it seems the government is intent on reducing the pain of struggling homeowners in the near term. But this free money environment won’t last forever. When that happens, it’s worth considering what will happen to all the people who have been hired in our industry over the past year, and whether there are roles for them for the next phase of the market.

While some lender-servicers will be able to transition their teams to the servicing side of the business, the number of originators that actually have that ability is pretty small. Most originators don’t have a servicing book, and while many servicers have an origination channel, it only exists to retain borrowers—their real business is servicing. Many other large lender-servicers don’t service loans directly, as the work is done by a subservicer.

Because originators handling the bulk of refinance volume have no other option, they’re going to have to let people go—especially the high-priced underwriters they just brought on. We’ve seen this story develop before. Historically, the mortgage industry has been notorious for hiring people as quickly as possible when demand is high and firing people just as fast when the music stops.

There may still be new roles for underwriters in the servicing arena. At some point in the future, we will see a wave of loan modifications, although it’s uncertain how many underwriters will be needed to perform this work. This could change, if the government decides to put new HAMP or HARP-type programs in place. HARP, you may remember, created a miniature refinance boom for lenders. There may also be opportunities for underwriters to transition to due diligence work, but it’s doubtful whether that will be an easy shift for the industry.

Why Outsourcing Popularity Will Grow

While the historic trend of hiring and firing people with every market turn probably isn’t going to change, the option of outsourcing staff has become more popular than ever. To a large extent, we have the pandemic to thank for that. When mortgage companies were forced into remote work, the value of outsourcing soared as a fast, affordable means of supplementing internal teams. Another reason outsourcing has grown is because there are far more specific processes and services that can be outsourced than there has been in the past.

Compared to most lenders, the ability of the right outsourcer to shift resources is like night and day. Most lenders do one thing, and when that one thing drives up, so does their business. But a quality domestic outsourcing partner that has been through multiple market cycles is adept at balancing its own staff resources and capabilities as market needs change.

Another big reason why outsourcing has become more prevalent has been the availability of new servicing technologies. Just as point-of-sale and loan origination platforms have helped originators improve efficiency and lower costs, new servicing technologies have been made accessible that can help streamline loan modifications and loss mitigation activities, as well as help guide borrowers through the process. For the most part, these technologies weren’t around during the last crisis, but they are increasingly being used today.

As it stands, any significant shift in the market may be months or even a year away. But when volumes do level out, the best option for many companies will be to outsource the resources they need to avoid staffing up when volumes rise again and reducing headcount when they fall. And who doesn’t need one less thing to worry about?

(Views expressed in this article do not necessarily reflect policy 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 Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)