When mortgage servicing transfers make sense
Leaning on experts can improve outcomes
The transfer of mortgage servicing rights from one servicer to another is not something to be taken lightly.
After all, regulators in 2013 started warning servicers about the risk of losing key documents or sloppily transferring mortgage servicing rights from one party to the next.
The Consumer Financial Protection Bureau in particular took notice, advising servicers to follow best practices and to ensure an appropriate standard of care is maintained during the loan on-boarding process.
But transferring a loan from one servicer to another is not always a bad idea – no matter how trying it may seem or risky. In fact, the decision is usually based on a need to partner a particular loan or mortgage portfolio with a servicer that possesses the right servicing qualities to get the borrowers performing again.
"I think that MSR transfers are playing a role – albeit a relatively small one – in the ongoing loan performance improvements we’ve been seeing," said Rick Sharga, executive vice president at Auction.com. "It stands to reason that distressed borrowers whose loans are transferred to special servicers will have a better chance at a successful loan modification, since special servicers are simply better at doing them than some of the larger, more traditional servicers. Whether those improvements are permanent or temporary remains to be seen: no matter how proficient a servicer is at modifying loans, success still depends on borrowers keeping their end of the bargain."
And while servicing transfers are not credited for creating today’s environment of improved loan performance, they are a key part in resolving legacy mortgage issues when a servicer is able to fix or resolve a particular issue.
Sharga says it’s likely the big jumps in mortgage performance result from tighter lending standards and underwriting guidelines.
"There are fewer delinquencies than what we’d normally see, and virtually no defaults. As long as credit remains tight, performance will continue to improve," he explained.
The Office of the Comptroller of the Currency (OCC) confirmed that first-lien mortgages are performing much better today.
The regulator released its third-quarter Mortgage Metrics Report, noting that 91.4% of mortgages were current and performing at the end of 3Q, improved from 88.6% last year. The Comptroller credited stronger economic conditions, servicing transfers and home retention efforts – as well as home forfeiture actions – for improving loan performance across the board.
Overall, mortgages 60 days or more past due fell to 3.6% in 3Q, compared to 4.4% last year.
When asked by HousingWire whether loan servicing transfers improved overall loan performance, a spokesperson for the OCC said, "Transfers of servicing do not in and of themselves change performance of individual loans. A borrower and their new servicer still have to work toward resolving delinquency, which may occur through a borrower catching up on payments, paying the loan in full, refinancing, qualifying for a foreclosure prevention action or completing foreclosure, short sale or deed-in-lieu of foreclosure."
But he added, "When transfers includes delinquent loans, it has the effect of improving the delinquency rates of the remaining portfolio of reported loans."