Souren Sarkar, CMB, is president and co-founder of Nexval, Miami, a technology company specializing in mortgage automation processes and IT infrastructure upgrades. He has more than 25 years of experience as a technology leader in the mortgage and banking arena and is an expert at improving the performance and scalability of service-driven businesses using workflow automation. He can be reached at Souren.Sarkar@nexval.com.
If mortgage servicers ever needed an argument to not hold back on technology investments, they need look no further than the recent fiascos in the airline industry.
In December 2022, Southwest Airlines had a system meltdown that left thousands of travelers stranded during the holidays. Shortly after, in January 2023, a Federal Aviation Administration (FAA) system outage grounded more than 35,000 flights nationwide. Investing in technology upgrades could have prevented these issues—but will instead cost a ton of money to fix.
Like the airline industry, if servicers aren’t willing to make the right technology investments to manage their workflows and loan quality issues today, it will very likely end up costing them much more down the road. Because from a technology standpoint, mortgage servicers and the airline industry have a lot more in common than you might think.
Two Industries, Similar Issues
The details of last winter’s massive flight cancellations are still coming to light. But the crux of the matter is that most of the systems used to book and manage flights across the nation’s 5,000 public airports and several dozen major airlines were built in the 1970s and have not been significantly updated since. Like the airline industry, the bulk of mortgage servicers are using technology platforms and systems built decades ago.
The airline and servicing industries have another thing in common: Both experience an enormous amount of daily “traffic,” for lack of a better word. Thousands of events take place in the airline industry at any given moment, whether it’s someone booking a flight, or a plane being delayed or rerouted because of weather. Even when the COVID shutdown was taking place, flights were still on. In servicing, where there are millions of loans that last an average of seven years, transactions are taking place constantly as well, including ACH payments, forbearance requests, tax and insurance disbursements, refinancings, defaults, collections, and more.
In each industry, you still can find companies running software created at the dawn of the computer age in the 1970s, which was designed using early computer languages like COBOL (Common Business Oriented Language). To keep up with the times, many companies simply slapped on new user interface systems that were easier to use and made their software somehow work, but the underlying technology remained the same. In both industries, there’s also no way to shut down a core system and put it in maintenance mode or carve out a window where you can completely overhaul the system and install new, better technologies—at least not without severely impacting the entire business.
Servicers, of course, face unique challenges when it comes to the shortcomings of legacy systems. For example, most servicing platforms operate as quasi-monopolies when it comes to data. Because clients are basically locked into service contracts and can’t easily switch platforms, providers can charge outrageously high rates for very simple tasks, like extracting data. These problems could be bypassed by creating real-time, web-based API connections, but in many cases, this option is unavailable.
Even if they could, many servicing platform providers are hesitant to change their systems very much to accommodate a servicer’s data needs. When they do update their technology, it usually takes a long time because they are afraid that by adding anything new, something else in the system won’t work. Their attitude is, if it isn’t broken, don’t fix it.
Yet another challenge servicers encounter happens when transferring loans. Because data needs to be downloaded from one system to another while loans are “in flight,” or still being serviced, loan transfers can be very cumbersome. This challenge is magnified when a new servicer needs to add additional data fields or information to the loan files, which may not be possible based on the previous servicer’s system.
This means the new servicer must sort through historical loan documents and extract data manually to repopulate their database for their needs. At the same time, the new servicer may be locked into its own legacy platform, preventing them from optimizing data to fuel its business processes. It’s essentially a vicious cycle that never ends.
Where to Go From Here
It’s clear there are many aspects to these technology problems that are beyond a mortgage servicer’s control. However, there are some steps they can take to reduce their risk.
Servicers can implement a more streamlined user interface layer with built-in workflows that can bypass some of the mainframe data issues they face. By creating a good user interface, servicers can use their systems more productively while giving borrowers and investors greater visibility. The ongoing work of MISMO and MERS to create greater data standardization for mortgage lenders, servicers, and investors is also helping servicers reduce their risk.
Over the long term, however, mortgage servicers need to take back control of their data by negotiating deals with their system providers to provide greater access to the servicer’s own data. We as an industry should also press these platform providers to do the right thing and make data more accessible.
Facebook is a good example of this. The social media platform captures a ton of customer data that, until recently, users could access again if they decide to leave the platform. Under regulatory pressure from Washington and privacy rights groups, Facebook has begun to allow users to download their own data. Servicing technology providers could make data portability available to their clients that are looking to either change systems or merely gain greater transparency into their data.
Since servicers have been so busy lately, many may believe that this is not the time to adopt better servicing technology. Indeed, these are difficult decisions to make because they may require additional IT resources or technology investments. But what servicers should look at is the net benefit in terms of short-term and long-term ROI, as well as the potential costs of not doing anything—which is exactly what caught the airline industry off guard.
For many organizations, the simplest, most cost-effective solution is a sound business process outsourcing (BPO) partner that specializes in providing innovative technology to help servicers maximize their current databases. With the right BPO partner, servicers can achieve greater compliance and be more cost-efficient than if they handle processes in-house.
Whichever they decide, there is no time like the present to get started. We only have to look back to the 2008 financial crisis to understand the enormous expense that older, inadequate technologies can cause. And we only need to look back several months to see what happened to the airline industry. The best time for our industry to address these issues is now, as the potential cost of doing nothing is too great.
(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 firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)
As published on MBA Newslink April 14, 2023