Don St. John is chief operating officer of Home Servicing
, a specialty servicer based in Baton Rouge, La. Since joining the firm in 2008, he has been responsible for overseeing servicing operations, systems development and implementation, in addition to investor reporting and remittance processes.
For this edition of In This Corner
, St. John explains what the differences are in niche servicing and how he thinks firms like Home Servicing will impact the current mortgage market.
HousingWire: Home Servicing is known as a niche servicer. Exactly what does that mean and which niche do you cater to?
Don St. John: The niche we cater to is low-value, first-lien mortgage loans. Typically our product is about $60,000 in current value or lower, and in geographies that have fairly depressed real estate markets, like the Midwest Rust Belt, the Southeast, Florida condominiums, and some Arizona and California low-value properties. Our portfolio also consists of severely delinquent loans because in most institutional large servicer processes, these loans are charged off at some point in their life cycle due to the low value of the loan.
HW: What are the benefits of focusing on one specific type of servicing model? What are the difficulties?
DSJ: The biggest advantage is there's high geographic concentration of these assets so if you focus on very specific markets and cities, you can have a good understanding of the current market conditions. We accomplish this through the use of field representatives who are in the field and cover these geographic regions and personally visit the properties on our behalf. We don't use third-party vendors to evaluate the properties.
The main difficulty we face is having to do all the same processing necessary on, for example, a $300,000 value asset. Whether we're doing a modification of the loan or a short sale of the real estate with the borrower's authorization, we still have all the same steps to go through to get the resolution you would on any higher value property. It's a very labor-intensive process for us on low-value assets. When you look at our cost in conjunction with the efforts required to process the loan, that becomes very difficult, especially with our field network.
HW: With big servicers coming under scrutiny for things such as robo-signing, do you see niche servicing becoming a widespread trend? Do you think market share will break down to more specialized servicing models?
DSJ: You're seeing two things happening in the industry right now. What you hear as far as industry lingo is "component servicing," which means specialty or niche servicers that deal either with specific types of products or assets. Or you may see institutional investors divide their portfolio by delinquent loans and performing loans. So you're going to have component servicing by type of product or delinquency stratification. Component servicing is the direction I think we're going to take to deal with these specific problems.
HW: How do you think servicing on a smaller scale will benefit the housing market? If you believe it would disrupt or have a negative impact, please explain why.
DSJ: It's hard to say what the right answer is because there is such a large volume of issues at hand right now. With a smaller component servicer, you're probably going to get a little better response and cooperation and interface with the customer. But at the same time, some of the smaller, niche servicers don't have capacity to handle the number of delinquent and problem loans there are in the marketplace. You need big servicers to service a large component of this, but when it gets to the severely delinquent or low value or specific geography or first liens vs. second liens, you're going to have to break up those pieces and get them into a component-servicing environment. I think it requires both.
HW: In general, what is the difference in servicing timelines between niche servicers and large servicers?
DSJ: When it comes to dealing with the customers, for example, exchanging documents or getting signatures, niche servicers probably have a little better timeline. When it comes to customer interface a smaller servicer can have an impact because it's a lower volume, higher touch kind of operation. But when it comes to things like foreclosure that involve the counties and the courts, you really can't control that. Those timelines are dictated by court dockets and schedules and resources at county level.
HW: How important is the role of technology in niche servicing? Undoubtedly, the entire mortgage industry is shifting further towards digital transactions, but is it something that is essential to your business model? Why or why not?
DSJ: To some degree we probably don't leverage technology the way large servicers do because the number of accounts we need to manage isn't driven by technology efficiencies. It's built more toward that customer interface and being able to view the properties. We have a more low-tech approach to correspondence with the customer itself. We don't build a lot of processes around technology.
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