Government LendingServicing

Fitch: These 4 things keep driving up the cost of mortgage servicing

Regulatory compliance is the big one

Fitch Ratings RMBS department recently held a servicer roundtable event at the Hearst headquarters in New York.

At that roundtable, several senior representatives from key RMBS servicers actively participated in perspective and strategy discussions relating to servicer impact on bond performance.

The biggest takeaway for HousingWire readers? The cost of mortgage servicing, at least those collateralized into bonds, keeps rising — a trend not likely to end.

So what keeps driving up the cost of mortgage servicing?

The participants identified the 4 main areas of pain points (cost-wise) as follows:

  • Prioritization of compliance ahead of performance management
  • Contribution of regulation to higher servicing costs
  • Increase in number of states performing servicer reviews
  • Effectiveness of transition from HAMP to proprietary modifications

And it is that second point, that is the biggest ouch of all.

In an environment of ongoing regulatory scrutiny, servicers said they expect to continue making significant investments in compliance. “There was a general consensus among the servicers that investments in regulatory tracking and monitoring systems have taken priority over areas that can drive improvements in loan performance management,” according to the Fitch write-up of the roundtable.

79% of the Fitch-rated servicers agreed that regulatory compliance is prioritized ahead of loan performance management and 89% agreed that regulation has made loan performance management more difficult.

The rising cost of investing in compliance is ultimately hurting the homeowners who need help the most, the servicers said.

“The increased cost associated with maintaining an effective compliance servicing environment may adversely affect the servicer’s effectiveness in pursuing alternative loss mitigation solutions,” especially in storm-ravaged areas, they noted.

An analysis of CFPB complaint data covering the 12-month period ended Sept. 30, 2017 indicated that servicing complaints made up the majority of total mortgage complaints. The three main areas included payment issues at 31% of complaints, loss mitigation at 27% and loan administrative processes at 26%.

And while the CFPB is keeping tabs on the industry, participants complained that mortgage servicers don’t’ do enough to communicate with one another. 85% of the servicers attending the roundtable said there is not enough industry information available to compare servicer performance.

“It is important to recognize that the composition of servicing portfolios can differ significantly across platforms,” Fitch concludes.

Here’s is a wrap of the outlook going into next year:

"Higher costs can also lead a mortgage servicer to constrain loss mitigation resources, which might ultimately negatively impact performance. The regulatory environment has been an important driver in the growth of nonbank servicers, largely due to transfers from bank servicers. Banks are expected to continue transferring underperforming loans to nonbank servicers as nonbank servicers continue to exhibit greater willingness to work through the regulatory challenges."

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