Since 2017’s BRAWL (Brokers Rallying Against Whole-tail Lending) initiative, ownership of customer servicing in the mortgage industry has garnered special attention. With independent brokers claiming greater ownership of customer relationships, learners have ramped up their servicing efforts. Today, mortgage providers and servicers focus on delivering superior customer experience while also keeping brokers connected with the borrower. As such, the mortgage loan servicing market has also grown in leaps and bounds.
Between 2022 and 2028, the global loan servicing market is expected to grow at a rate of 11% CAGR, reaching nearly 1.5 billion by 2028 from just about 680 million in 2021. What are the key trends fueling this growth? How can the mortgage industry adapt to the new servicing challenges of the post-pandemic era? Here is what to expect this year:
1. Servicers may have to cope with high delinquency rate
Delinquency rates have been in flux for a while, with intermittent dips and spikes. As the mortgage industry exited the COVID period, many borrowers had little to no loss mitigation solution in place. As a result, they lost access to forbearance relief and had to default on payments. Regardless of overall trends, servicing companies will have to work with delinquent borrowers in large numbers, even in 2023. This will be exacerbated by the ongoing inflation as well as the fears of a recession.
2. Mortgage automation services will help upgrade the traditional call center
Research suggests that the mortgage industry lags behind most other sectors in terms of the efficiency of its servicing call centers. For some servicers, call abandonment rates can exceed 30%, and callers may have to stay on hold for over 10 minutes. Needless to say, this damages the borrower’s experience. Mortgage automation services will help call centers overhaul their systems through sophisticated technologies like chatbots, AI-enabled interactive voice responses (IVR), and automated call routing and queue management.
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3. Servicers will have to accommodate non-English languages
The average US home buyer is now increasingly diverse, and this will have an impact on their servicing expectations. Importantly, the percentage of delinquent borrowers with a non-English preference has increased, while that of delinquent borrowers with an English preference has actually gone down. In other words, there is a growing divide between English and non-English preferring borrowers who have defaulted on their loans. In 2023, servicers must work towards bridging this divide by providing easy and streamlined communication in multiple languages.
4. Data capabilities are the need of the hour
In a study by the Consumer Financial Protection Bureau (CFPB), several of the servicers surveyed could not provide information on key metrics. Either they are unable to track data, or the data available is inconsistent. The absence of accurate and timely information can hinder servicing capabilities, causing servicers to overlook borrowers who may need assistance or those that pose a business opportunity. Therefore, the need to become data-driven is one of the key mortgage industry trends from 2023.
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5. Narrow margins will encourage servicing automation
The mortgage industry traditionally operates on thin margins, and increasing housing prices (leading to unpredictable demand) has taken a further toll. On the other hand, loan servicing volumes are constantly growing due to customers exiting the forbearance relied period, those perplexed by new regulations, and borrowers under financial strain. A manual servicing approach can result in a very long cycle time and high costs. In 2023, mortgage automation services will be essential to reduce the dependence on human effort, both for backend (data processing) and front-end (borrower-facing) tasks.
6. Frequent regulatory changes will transform risk management
Risk management is no longer a set-and-forget process. To protect customers without COVID-19 relief, the CFPB is coming out with new and frequent regulations that survivors must take into account. For example, in February 2023, the CFPB announced regulations covering digital mortgage comparison platforms. A third-party risk management solution will be crucial in 2023 to help services stay abreast of these dynamic rules and remain compliant without adding to their existing workloads.
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7. Several companies will incur penalties for violations during the pandemic period
During the pandemic, not all mortgage businesses were equally positioned (or sufficiently digitally mature) to continue profitable, compliant operations. Some companies violated mortgage industry rules during that period, which will now come to roost. For example, Carrington Mortgage was fined $5.25 million for “improper practices” related to forbearance servicing during COVID-19. One can expect several such cases in 2023.
8. The mortgage servicing rights (MSR) market will see healthy demand
MSRs have begun 2023 on a healthy note, with $60-65 billion in MSR portfolio offerings currently available for bids. This is further augmented by the interest shown by industry majors like Wells Fargo, as well as mortgage automation services that help overcome most of the challenges of servicing transfers. Amid both growing demand as well as supply, MSR values may dip to favor servicing rights of buyers and investors in the mortgage industry.
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The mortgage industry is going through a period of renewed change and growth following the events of the last two years. A strong digital bedrock is essential so you can stay agile, adapt fast, and take advantage of market opportunities while navigating its challenges.
Speak with Nexval’s Tech Gurus to learn how. You can also meet us at the MBA Servicing Solutions Conference & Expo 2023.