MBA Servicing: Compliance hijacks the cost of servicing

Adapting means scaling up personnel, technology

A panel at the MBA Servicing Conference on containing the cost of servicing made one thing very clear — it's all about compliance.

The panel, moderated by Marina Walsh, vice president of independent analysis at the Mortgage Bankers Association, featured Mike Weinbach, senior vice president, head of servicing for Chase; Kim Yowell, senior vice president of servicing, BOK Financial; Scott Mesenbrink, senior vice president, finance, RoundPoint Mortgage Servicing; and Melanie Reid, senior vice president and head of home lending servicing consumer specialty operations, RBS Citizens.

Focused on finding operational efficiencies to help servicers manage costs, the four presenters outlined case studies of how their companies were adapting to the rising costs of servicing. According to Walsh, direct servicing costs have risen for the past seven years, although data from 2014 shows some leveling off from the peak numbers seen in 2012 and 2013. The direct servicing costs were $170 in 2014, compared to the record high of $205 in 2013, and $164 in 2012. In 2008, the cost was $58.

The number one reason for increased costs cited by the presenters, and echoed by attendees? Compliance.

"Managing costs is managing compliance," Yowell said. "In the past, we always served three masters — investors, shareholders and customers. Now we also have compliance."

BOK Financial, as a smaller servicer, is looking to increase its servicing volume to offset some of the higher costs of compliance. Yowell said they are concentrating on understanding and utilizing the technology applications they already have, as they phase in new technology to meet the increased regulations. 

Reid at Citizens and Mesenbrink at RoundPoint Mortgage echoed that sentiment — both are looking to expand their servicing business in the next year.

At Chase, which is the No. 2 originator and servicer in the industry, Weinbach said they are looking to decrease their servicing business.

"Significant regulation and legal complexity is a big part of this business. We are looking for ways to simplify our business," Weinbach said. 

One of the ways Chase is doing that is by reducing product offerings — from offering 37 products in 2013 to 18 in 2015.

"The products we offer now cover 97% of what customers are looking for. The 19 we eliminated significantly simplify our operations," Weinbach said.

The risk associated with being out of compliance is so daunting that compliance has overtaken costs as a benchmark for success at some servicers, the panelists said. For instance, Yowell said that in the past the expectation was that servicing managers would improve the cost to service by a certain percentage each year — sometimes as high as 15%. Now, servicing managers at BOK aren't measured against budget, but based on compliance and delivering the technology needed to comply.

Mesenbrink said the higher costs facing servicers gives them two choices — reduce their profits, or sacrifice compliance and customer service. 

"Traditionally, to manage costs and get expenses down operations managers might cut corners, but cutting corners now will cost you a lot more in the end — it's much more critical to look for process improvement," Mesenbrink said. "It's critical we balance all of these priorities, and the compliance part has to be right."

Getting more efficient includes reducing exceptions and providing consumers with self service options, Mesenbrink said.

Vendor management was a significant cost to all the panelists, as they take on the liability of each of their third-party service providers. 

"You can't just take their word for it anymore," Reid said. "You have to trust but verify. I have to have evidence that I have verified what they say — that I have seen it for myself, or listened to their calls."

That intensive follow up with vendors is one reason many servicers are consolidating their vendor network. "Now we have just a few key vendors, because of the costs associated now with managing them," Reid said.

Karl Falk, co-founder and CEO of ShortSave, based in Monument, Colorado, said he appreciated the different perspectives on the panel and connected with all four on some level. He said his company is paying close attention to customer service and how they can improve the borrower's options for self service. 

"We are trying to fundamentallly change the borrower interaction on the default side. The ancillary effect of that is that it reduces the lenders' touches on the file and actually increases compliance," Falk said.








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