The Competitive Edge: In-House Mortgage Servicing for Credit Unions
When interest rates rise, credit union members are less likely to refinance their mortgages at higher rates, which can increase the value of mortgage servicing rights (MSRs). Credit unions can retain the servicing of loans sold on the secondary market to enhance revenue. The 2024 Mortgage Bankers Association’s Servicing Solutions Conference & Expo reported that 19% more companies that retained servicing revenues were profitable than those that were not.
Keeping servicing in-house offers numerous benefits, including enhanced borrower experience, operational control, and data security. This approach strengthens credit unions' financial health and fosters more robust relationships with members.
The Benefits of In-House Servicing
Servicing loans in-house can provide a significant competitive edge for credit unions. A primary benefit is that in-house servicing generates additional revenue streams through servicing fees and ancillary products. MBA reported that the average servicer handled 937 loans in 2023. With a standard service fee of 25 basis points, using the average home loan size of $405,000 in April 2024, this means that each full-time employee can generate nearly $950,000 per year in revenue. This steady income can help credit unions weather economic fluctuations and enhance their financial stability.
Credit unions can maintain direct contact with borrowers by keeping servicing in-house, allowing for more personalized service. This direct interaction helps build stronger relationships and improves member satisfaction. Consistent, high-quality service strengthens brand loyalty. Borrowers are more likely to return for future loans and recommend the credit union to others, driving long-term growth.
Managing servicing internally also gives credit unions greater control over the quality and consistency of service. This control ensures that borrowers receive the highest level of service and that any issues can be addressed promptly and effectively. Keeping servicing in-house allows credit unions to maintain stricter control over member data, enhancing security and ensuring compliance with privacy regulations.
The Challenges of Mortgage Servicing in Core Systems
Effectively managing loans sold on the secondary market necessitates robust mortgage servicing software that can automate investor reporting and adapt to evolving requirements. Some servicers utilize the limited tools in their core processing systems to cut costs, treating mortgage loans similarly to auto and personal loans. However, this approach often proves problematic due to the unique regulatory demands and complexities inherent in mortgage servicing, which core systems struggle to address.
While core systems of financial institutions are versatile, they often lack the specialized functionalities crucial for effective investor reporting and compliance in mortgage servicing. These limitations can force servicing staff to manually perform investor reporting and escrow tasks. This process is not only time-consuming but also undermines the benefits of automation. Management might consider manual processing feasible due to the typically lower volume of mortgage loans than consumer loans. Still, this strategy can lead to inefficiencies, increased error risks, and non-compliance, posing significant threats to the credit union's operations.
Investing in dedicated mortgage servicing software is essential to streamlining operations, enhancing accuracy, meeting regulatory standards, and ensuring seamless loan handling in the secondary market.
Five Essential Features for Effective Mortgage Servicing Software
Mortgage servicers must balance the needs of borrowers, investors, and regulators. The right tools can streamline operations and enhance profitability. Modern mortgage servicing software is crucial in achieving these goals by integrating seamlessly with core systems to improve member service and ensure compliance. Here are five features every credit union should have in their servicing software:
Automated Investor Reporting
Credit unions must adhere to specific investor reporting rules, particularly for Government Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac. Automated investor reporting in robust mortgage servicing software simplifies this process, adapting swiftly to changing compliance requirements and reducing costs and risks.
Comprehensive Escrow Management
Effective escrow management is a critical challenge when using core systems for mortgage servicing. Modern software automates escrow administration, ensuring accurate and timely payments and reporting. Key functionalities include:
- Initial, annual, and final escrow analysis statements
- Interest on escrow processing
- Escrow tracking reports
- Escrow premium updates and disbursements (individually and in mass)
- Tax service interface
Borrower Web Applications
Self-service web apps allow members to access loan information, view statements, and make payments online, 24/7. This reduces the need for phone support and enhances member satisfaction. Automated notifications and personalized messages further improve borrower communication and trust.
Application Programming Interfaces (API)
APIs enable seamless application communication, automate processes, improve accuracy, and reduce costs. By leveraging APIs, mortgage servicers can automate reporting, save time, and minimize errors, enhancing overall efficiency.
Real-Time Access
Mortgage servicing software should provide tellers, call center staff, and members with real-time access to current mortgage information. Real-time access enables instant viewing of loan details and history, payment processing, and payment confirmations, making staff more efficient and improving the member experience.
Choosing mortgage servicing software with these five capabilities helps credit unions meet investor reporting requirements, keep servicing in-house, and automate operations for better efficiency and accuracy. By focusing on advanced software solutions, credit unions can handle more loans per employee, offer superior service to members, and achieve breakthrough success in the secondary market.
About Author:
Susan Graham is president and COO of FICS® (Financial Industry Computer Systems, Inc.), a mortgage software company specializing in cost-effective, in-house mortgage loan origination, residential mortgage servicing and commercial mortgage servicing software for credit unions, mortgage lenders, and banks. FICS also provides document management, API, and Web-based capabilities in its full suite of products.