Mortgage servicing is the ongoing process of completing loan procedures once origination and approval ends, up until the final mortgage payment or foreclosure. This gives servicing companies and large consumer lending firms plenty of room to innovate, adapt to borrower needs, and follow agile principles to stay nimble in their operations. In fact, the agile model can spur a more efficient and digitally mature era in consumer lending and mortgage servicing.
Why is Agile an Important Concept for Mortgage Servicing?
Traditionally, the mortgage servicing industry had to bear the brunt of economic pressures that the borrower faces throughout the tenure of the loan. Since the average mortgage tenure is close to 30 years, this means that servicers and other consumer lending institutions must constantly adapt to borrowers’ changing financial scenarios.
In 2023, for example, the J.D. Power U.S. Mortgage Servicer Satisfaction Study shows that the average rate on a 30-year fixed rate mortgage is comparatively high at 6.8%, and associated costs such as home insurance and maintenance remain elevated. The proportion of financially unhealthy servicing customers has increased from 48% to 54% in just one year.
Due to these pressures, customer satisfaction with servicing companies has also declined, along with a 4% rise in default risk.
Suffice it to say, mortgage services now face a spate of new challenges in the post-pandemic era, with its inflationary forces and fear of recession. In this context, mortgage IT solutions can help make servicing operations leaner, cut avoidable costs, and improve borrower communication at a time of need. The agile model in the world of mortgage IT solutioning makes it possible to innovate faster, accommodate borrower feedback at pace, and introduce new features within tight timelines.
For example, the percentage of customers with unresolved servicing problems has increased from 15% to 20% in just one year. Agile systems could help servicing companies accelerate problem resolution while maintaining efficiency.
How Does the Agile Approach Work in Mortgage Servicing
In the agile approach, mortgage services and consumer lending institutions adopt an iterative and test-driven model of project management instead of following a linear pathway.
For example, let us say that you are refurbishing your servicing platform to accommodate new regulations pertaining to modernized borrower communication. The agile approach would allow you to fail fast and fail-safe, launch a speedy prototype that quickly garners feedback, and iteratively build out the perfect solution. Instead of looking at mortgage IT solutions like a physical construction with a fixed blueprint, agile principles encourage us to adapt and continuously improve without deviating from a pre-negotiated path.
There are two ways in which you can incorporate agile into mortgage servicing: as part of the mortgage IT solutioning process when building a servicing app and in projects related to mortgage servicing. In each case, the project manager must remember these principles:
- Prioritize borrower satisfaction early on.
- Make room for changing requirements, including the fast-evolving nature of the mortgage regulatory compliance
- Be prepared for multiple versions and frequent delivery.
- Collaborate closely with all the involved stakeholders, including servicing executives, external regulators, and outsourcing partners.
- Build a culture of trust and inspiration where employees are motivated to reach their goals.
- Prioritize face-to-face or at least real-time communication for information exchange.
- Quantify your targets and measure progress accordingly.
- Create a delivery pace that you can sustain over time since mortgage servicing is a long-term process, and agile is meant to sustain an indefinite improvement timeline.
- Focus on achieving simplicity, usually through more efficient work processes and
- Assemble great teams that can motivate team members and result in exceptional outcomes.
- Make regular reflections part of the project management ethos to understand strengths and weaknesses and act on them.
These 12 agile principles were codified as part of the Agile Manifesto and can play a crucial role in streamlining the delivery of mortgage IT solutions in the consumer lending space, especially in the servicing sector.
The Benefits of an Agile Strategy in Mortgage Servicing
Embracing agile can help mortgage servicers:
1. Reduce default risk
Since agile principles place feedback front and center of development, they inspire a culture of constant communication. This trickles down to borrowers as well, with servicing executives conducting proactive outreach at a time when borrowers face various kinds of financial pressures. This can reduce the risk of default payments and, eventually, foreclosures, which reduces the cost efficiency for services.
2. Comply with new regulations
The last few years have brought frequent regulatory updates, from COVID time payment relief to the recent communication policy changes. Servicing processes and applications need to be updated accordingly. The agile model makes it easier to roll out application iterations at pace as federal rules are refurbished for a new era of mortgage customers.
3. Improve the bottom line
An agile strategy ensures that servicers have a strong technology bedrock and the right mortgage IT solutions in place to operate efficiently. This makes it possible to optimize human effort, reduce unnecessary overheads such as the cost of legacy hardware infrastructure, and scale up or down in response to a volatile economic climate.
Embark on Your Agile Journey
Agile is not just a software development framework; it is a cultural and operational practice that helps organizations stay adaptive to change and make the best use of their available resources. As the consumer lending industry (including servicers) goes through a period of opportunity and change, agile provides an excellent foundation to build your future processes.
At Nexval, our team of 1000+ SMEs collaborates closely with leading mortgage institutions on modernization projects. Speak with our experts to discover the power of agile today.