Reflecting on 2023 Servicing Trends, Anticipating 2024’s: A Q&A With BSI Financial’s Allen Price

MBA NewsLink recently interviewed Allen Price, SVP at BSI Financial, about the trends he saw in the servicing market in 2023, and what he thinks may be to come this year.

Price is a mortgage industry veteran with more than 20 years of experience in the primary and secondary markets. At BSI, Price focuses on loan subservicing, QC and mortgage servicing rights (MSR) acquisitions.

MBA NewsLink: Trading mortgage servicing rights (MSRs) was profitable in 2023, perhaps more so than 2022. Do you expect the same in 2024, or could low production volume or the possibility of lower mortgage rates dampen MSR trading?

Allen Price: MSR trading will still be profitable in 2024, but the market is definitely shifting with the prospect of lower mortgage rates, which tend to have a dual effect on MSR values. On one hand, MSR values generally decline in lower rate environments because loans are paid off earlier than expected. At the same time, low rates can create a silver lining for mortgage servicers through new origination opportunities.

If we indeed see lower rates this year, it’s likely that the MSR market will taper off a bit. On the other hand, servicers that are adept at managing refinancing waves and have strong customer retention strategies should be able to mitigate some of the impacts. The key for every servicer will be how well they’re able to adapt to these changing conditions.

MBA NewsLink: What is your outlook for the home equity investment market in 2024? Do you believe it will move homeowners away from home equity loans and HELOCs?

Allen Price: The market for home equity loans and HELOCs should remain strong for some time, as many homeowners are sitting on low rates and significant home equity. That said, the outlook for HEI products is very bright. Consumer awareness about equity sharing as a viable financial tool appears to be growing, and HEIs offer distinct advantages for homeowners who need access to their home equity and don’t want to borrow money to get it.

However, it’s important to note that HEIs aren’t really in direct competition with traditional home equity products. For one thing, they’re not loans, so they typically involve less stringent credit requirements. They’re typically for borrowers who need access to funds, perhaps to pay off debt, without actually incurring more debt. This makes them rather unique.

MBA NewsLink: Did monthly mortgage payments rise significantly in 2023 due to higher property taxes and homeowner insurance premiums? If so, do you expect this to continue due to the potential rise in weather severities, wildfires, flooding and other natural disasters next year?

Allen Price: Higher property taxes and insurance premiums both definitely had an impact on mortgage payments last year, and I expect both trends will continue. However, property taxes don’t always increase the same way home values do–in fact, assessed values are often lower than market values. But market values do impact assessed values, and when interest rates are already rising, higher property taxes can have a dampening effect on local housing markets, as they give potential new buyers and move-up buyers reason for pause.

Rising insurance premiums are a much bigger issue. Because of all the weather-related disasters we’ve seen in recent years, insurance companies have been consistently raising premiums to cover the heightened risk. Recently, there was a report by online insurance marketplace Policygenius that found home insurance policy premiums increased by an average of 21% between May 2022 to May 2023, due primarily to climate risk. I’ve read stories about some homeowners seeing their premiums more than double. Several large insurers have stopped issuing new policies altogether. And in some parts of California that have been impacted by wildfires, homes have become effectively uninsurable, something the state legislature is currently trying to address.

MBA NewsLink: Do you anticipate subservicing will increase in 2024?

I do. There are several factors at play here, but the main reason is that servicing costs continue to rise. Many financial organizations that got into servicing loans to offset lower origination volumes have found the resources they need to run an in-house servicing operation are beyond their means. Servicing loan portfolios effectively and efficiently requires substantial investments in technology, staff and training, which is beyond the bandwidth of many small- and mid-sized institutions.

For many mortgage companies, partnering with a qualified subservicer makes much more sense. By offloading the heavy lifting of day-to-day servicing tasks, they can free up resources to focus on originating loans and creating stronger customer relationships.

MBA NewsLink: Is subservicing a valuable strategy for all independent banks? Why or why not?

Allen Price: Subservicing is certainly a valuable strategy for most independent banks, but not all. There are many independent mortgage bankers that ventured into servicing as a means to stay profitable, but discovered the volume of work and complexity involved with servicing loans are more than they anticipated. Because it’s likely to only get harder for them, turning to an experienced subservicing partner is probably the best path forward. Of course, there are independent bankers that do have the staff and infrastructure to maintain in-house servicing and find value in owning the entire borrower’s experience. But as the servicing grows more challenging, I suspect they may even start looking for partners to help ensure they’re able to stay compliant and still deliver a high level of customer service.

MBA NewsLink: What should independent mortgage bankers, credit unions, banks and other servicers look for in a subservicer?

Allen Price: There are several key qualities to consider. First and foremost, reliability and a proven track record in the industry are non-negotiable. You need a partner with a solid history of performance and a proven ability to navigate the ups and downs of the market. Ultimately, you want a subservicing partner that values collaboration and transparency, and views themselves as an extension of your team.

Otherwise, technology, compliance expertise and customer service are each equally important. A subservicing partner should be leveraging advanced technology, including automated systems for payment processing and sophisticated tools for compliance and risk management. They also need robust systems in place for tracking new regulations and guidelines and the ability to implement any changes quickly. And because your subservicer represents your brand to your borrowers, they must be absolutely committed to your customers, responding promptly to all inquiries, and take a proactive approach when homeowners encounter trouble paying their mortgage.

I’d add that experience in loss mitigation and default management is critical as well, particularly at a time when loan delinquencies have started to climb higher. Having the expertise in handling late payments and defaults in a compliant manner while preserving the dignity of the borrower is a key to successful subservicing.

MBA NewsLink: What are you most concerned about in mortgage servicing in 2024? What business or economic issues might keep mortgage servicers awake at night?  

Allen Price: By far the biggest challenge for servicers this year is the anticipated increase in loan defaults. I don’t think we’re approaching anything like the 2008 housing crisis, but the reality is that unemployment, wage trends, inflation and other factors that are beyond a homeowner’s control are affecting the ability of many to keep up with mortgage payments. Whether they are servicing loans in-house or leveraging a subservicer, or perhaps both, servicers must have effective loss mitigation strategies in place that keep them compliant and prioritize customer care. After defaults, another major issue to worry about is cybersecurity, especially after several large data breaches hit servicers and their partners at the end of last year.

One of my biggest call outs is with mortgage organizations that got into servicing for all the right reasons, but may have bit off more than they can chew, and haven’t yet considered the benefits of leveraging a quality subservicing partner. The bottom line is that servicing isn’t going to get any easier in 2024, so if servicers discover they need assistance, now’s the time to get it.

(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.)