In an increasingly specialized world, some mortgage servicing employees are becoming generalists, with the help of increasingly sophisticated technology that lets one system manage a multitude of loan types.
That's because many lenders are putting most, if not all, of their loan servicing operations under one roof, at least figuratively. Whereas lenders traditionally choose to service different products - first liens, seconds, home equity loans and lines of credit, and consumer loans - through different departments, nowadays many lenders are taking a more enterprise-wide approach to loan servicing. Some are even adding unsecured, auto and consumer-credit accounts to the system on which they service real estate-secured loans.
Adding to the pressure for systems that can handle diverse loan products is the proliferation of new types of mortgages. The popularity of payment options and interest-only loans shows that lenders are continuing to innovate with product offerings.
For lenders, some of the benefits of single-platform servicing are easily apparent. Consolidating servicing operations can cut down on overhead and allow management the flexibility to devote staff resources where most needed. As a result, the days of many "silos," each managing different loan products, are numbered. With the development of application service provider architecture, which eases software upgrades by allowing the provider to make them on a system's central nervous system without hardware changes at the user's site, servicing systems are becoming more innovative all the time.
Getting Limber
Interlinq Loan Servicing, a division of Harland Financial Solutions, is adapting to meet the needs of mortgage lenders that are rapidly expanding and innovating in the area of loan product origination. The new loan products are one reason why servicers find themselves having to manage more than just plain vanilla products on their systems.
Already, the company has introduced dozens of enhancements to its system in recent years so that users can accommodate servicing multiple types of loans from the Interlinq Loan Servicing System.
Fred Melgaard, vice president for loan servicing products at Harland Financial Solutions, said the company's clients are under pressure to minimize expenses, and that often means consolidating servicing of multiple loan types onto one system. Not only does that simplify servicing, it means a lender only needs information technology experts to support one system rather than two.
Interlinq's approach is to develop support features without jumping the gun by investing resources before a new product has been embraced by the marketplace. Already, ILS supports products such as option ARMs, interest-first loans and home equity lines that have been widely embraced by lenders. Because of the widespread popularity of home equity lines, Interlinq is adding additional functionality to enhance its servicing capacity in this area. Construction lending features are also in development, as are features that will facilitate the reporting of credit bureau information for non-mortgage loans serviced using the ILS.
"As soon as you see a product that is successful in the marketplace, you have to react quickly," Mr. Melgaard said.
But not every innovation in the use of ILS is anticipated by the developers of the technology, Mr. Melgaard noted. Sometimes, users are marching ahead and adapting the system to service loans that are outside of the traditional mortgage realm.
"We have a few dozen customers that are doing things we never intended to do, but they are doing them very happily," he said.
And sometimes, developments in the marketplace, including negative publicity, help to generate changes in servicing technology. In recent years, litigation and regulatory action affecting some servicers over the charging of late fees and other issues, has prompted lenders to embrace ILS' lockbox component that takes the human factor out of the posting of payments received from consumers.
Interlinq benefits from its flexible software architecture that allows changes to be made relatively quickly, company executives reported. For instance, recently enacted changes to bankruptcy laws affected all loan servicing systems, but ILS executives said the adaptations they made were easier than would be required on a "hard-coded" system. That results in "internal dividends" for Harland, because the cost of upgrading and enhancing the technology to accommodate changes in the bankruptcy law were not as substantial as they would have been on a hard-coded system.
Joseph Filoseta, vice president of business development at Harland Financial Solutions, said in that regard, ILS benefits from being a client-server based system that is only about six years old.
"We are very well positioned to move the technology to the next generation of Internet-based technology," he said.
The increased emphasis on management control in the servicing sector, a byproduct of regulatory scrutiny that saw some large subprime servicers get into hot water with regulatory agencies and class action litigators, also may serve as an impetus to migrate toward one common platform for servicing loans.
Increasingly, the rating agencies that grade mortgage loan servicers prefer to have mortgages serviced on one system rather than multiple systems as well. The rating agencies get nervous if they see that servicing portfolio data has to be reconciled from two systems, Mr. Filoseta said.
Additionally, operating from one system means that a company has one single view of its customer base from a single database, facilitating improved customer intelligence, Mr. Filoseta noted. One system also simplifies the establishment of business continuity and recovery planning.
ILS, which relies upon a Sequel Database, is designed so that customers, even those that use an in-house version of the system rather than accessing it in an ASP environment, can receive upgrades without breaking the customization they've integrated.
Because of the information intensive nature of servicing nonconforming mortgage loans, ILS is especially popular among nonprime shops.
Because of that history, ILS has placed an emphasis on default management in addition to customer service features. With the proliferation of nonprime and affordable housing mortgage products, that expertise will become more critical going forward.
Users Need Room to Grow
Steve Horne, a senior vice president at Resurgent Capital Services, a Greenville, S.C.-based subsidiary of Sherman Financial Group, said that that his company places a premium on default management capabilities. Resurgent, an ILS client, handles primarily nonprime and nonperforming loan portfolios. As such, Resurgent does not look upon default functionality as something that can be treated as a "tack on" to a performing loan administration system.
"The perfect servicing shop begins with the perfect default servicing shop," Mr. Horne said.
Resurgent buys a wide variety of loan products, including credit card debt, mortgages, auto loans, mobile home, boat loans and small commercial loans. Some are secured loans, some are not. Many of the loans the company buys are nonperforming or charged-off.
In addition to its own portfolio, Resurgent offers third-party servicing to other clients.
Using ILS has allowed Resurgent to consolidate all of its installment loan servicing operations on one system, he said. And it has given Resurgent the flexibility to take in a large variety of asset classes under an integrated financial management, recovery and investor-reporting environment.
"We utilize the best talent that we have on a common platform," Mr. Horne said.
In many cases, Resurgent may end up with multiple types of loans to a single borrower in its portfolio.
"Having the ability coordinate loan servicing's multiple points of contact with a single borrower is extremely useful."
Managing such a diverse portfolio for itself and other clients requires a high level of flexibility and a responsive organization, Mr. Horne said. The flexibility inherent in a system like ILS is critical to Resurgent's ability to respond quickly to new opportunities in the market, he added, noting that the company expects to see growth in HELOC, interest-only and option-payment mortgages in its portfolio in the coming years.
Using ILS allows Resurgent to boil down portfolio information to a handful of basic reports, but it can also drill down to more specific details relating to the performance of a specific collection agent or processor, he said.
Goodbye Silos
In redesigning its loan servicing system, Fiserv tailored MortgageServ for the management of multiple loan products from a single system.
And it's not just small or mid-sized loan servicers that want to put all their loans on one platform. Big lenders have started to mix loan types on one servicing platform rather than creating multiple platforms for different products. That means that first and second liens, home equity lines of credit and even unsecured consumer loans are being serviced by the same team of employees, the same call centers and the same facilities, giving lenders greater flexibility to allocate resources where most needed while cutting down on the technology support expertise needed to support multiple systems.
Tom Gorman, chief operating officer at Fiserv Lending Solutions, said that with home prices climbing out of reach for many potential buyers, demand for new, affordable housing loan products is rising rapidly. The lending industry's creativity in helping to stretch a homebuyer's purchasing power has created a host of new loan products that will challenge servicers in the years ahead. That has created challenges for servicing tech providers too.
"One of the things we wanted to invest in from a software perspective is the ability to respond to some of these creative financing needs," Mr. Gorman said. "We've already been successful in offering to our clients a single platform that does first mortgages second mortgages and home equity lines of credit.
"We have a growing number of customers who are not only processing their first mortgages but their home equity lines as well," Mr. Gorman said.
As the new loan products proliferate - an estimated one quarter of home loan originations early this year were interest-only loan products - servicers need to adapt to support these new loan types. In the area of investor reporting, for instance, standard Fannie Mae and Freddie Mac protocols may not be sufficient as the percentage of loans pooled into private mortgage securities proliferate.
And that is a driving force behind Fiserv from a software design perspective, Mr. Gorman said.
Fortunately, service-oriented architecture allows Fiserv to take advantage of the Internet to add functionality that helps to make this possible.
On the investor reporting side, for instance, Fiserv is adding new interfaces that allow a question and answer format guide that takes users through the right rules process for a given loan, similar to how popular tax preparation software guides taxpayers through IRS rules without expecting the user to know all the rules. Service-oriented architecture allows a graphically enhanced, visually appealing interface without burdening the user with making all the rules decisions themselves, Mr. Gorman said. And it allows users to operate in a real-time, online environment, taking advantage of the Internet.
Today, Fiserv is adding additional functionality on the investor side of its system with a new user interface that will expand investor functionality. The system guides users through a "question tree," building criteria through the answers to the questions that are essentially filtered through a rules engine to determine the correct response.
"It takes answers to questions, and it generates the instructions of how you want the loan to be processed for investor reporting," Mr. Gorman said.
With more and more lenders offering loans that are sold to private investors rather than the government-sponsored enterprises, those private investors add wrinkles to investor-reporting requirements that servicers must adhere to. Fiserv's MortgageServ platform includes an ad hoc, on-demand report writer feature that allows servicers to adapt to the changing information needs of the private investor market.
Fiserv is also focusing on helping lenders manage "indirect lending." A new initiative will adapt the Fiserv servicing platform to manage indirect loans originated by dealers, such as automotive or manufactured home dealers. It allows lenders to take a portion of interest and pay the dealer who made the loan, as is common in the auto industry. It's part of the trend toward expanding a single servicing platform to make it a common servicing platform for all types of retail loans that are facilitated by SOA in computing, Mr. Gorman explained.
Few companies have embarked upon all-in-one servicing as persistently as GMAC Residential Mortgage. GMAC, which recently announced that its subservicing volume grew 45% between the second and third quarters of 2005, is a top ten lender both in terms of total mortgage servicing volume and in terms of subservicing. GMAC, a Fiserv client, which was one of the earliest lenders to add HELOC servicing to its residential servicing platform, has attributed some of its success to the versatility of its platform. GMAC's subservicing portfolio now exceeds $32.5 billion in home secured loans, while its total servicing portfolio stood at $276 billion as of Sept. 30. GMAC, which completed its conversion to a single-servicing platform with greater "band width" to handle any mortgage product about a year ago, services first mortgages, HELOCs, unsecured consumer credit, nonprime loans and nonperforming loans using the Fiserv technology.
Tom Donatacci, a senior vice president for business development at GMAC, said that more clients are venturing into niche products, or products that spread across a wider range of the credit spectrum than in the past. As a mega-servicer, he said that GMAC has the scalability to handle this type of growth in addition to its expertise in different product areas. He said GMAC is committed to helping customers "capture market share, expand product offerings and improve profitability."
That's a mission that may be music to the ears of today's loan originators. As their product offerings become larger and more complex, they will need to rely upon servicers that have the capacity and versatility to manage an increasingly diverse menu of loan products.
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