Strengthening the Human Factor in Mortgage Servicing

John Vella serves as Chief Revenue Officer of Altisource. Previously, he served as COO of Equator, LLC. He began his financial services career with the FDIC and Freddie Mac and later served as Chief Sales Officer for H & R Block's mortgage company, CEP of Household International's Automotive Business, President and CEO of Bear Stearns EMC Mortgage Company, and as EVP for Special Servicing of GMAC/RESCAP. He holds a Bachelor of Science in English from Springfield College. Vella recently spoke to MReport about the state of the industry and the challenges facing the servicing sector going forward.

What are the biggest challenges facing the industry right now?
With the rise in interest rates, there has been a real squeeze in the origination business and on volume and margins. Everyone is struggling with how to increase margins in this lower volume environment. How do we manage our expenses? How do we automate to become more efficient in this environment? How do we ride it out until the market gets better, from both a purchase and a refi standpoint? Firms are looking to utilize third-party vendors, such as ourselves when it comes to outsourcing certain capabilities and moving from a fixed cost to a variable cost model as volumes fluctuate.

I also see a lot of emphasis this year in utilizing artificial intelligence (AI), blockchain, workflow, data integrations, and exception-based management that allows lenders to make quicker decisions earlier on in the process, which ultimately helps the consumer and margins. There has to be more attention focused on customer satisfaction by providing more borrower retention services that meet the needs of the array of borrowers.

On the servicing side, with defaulted loans and distressed real estate at very low levels, the focus centers around customer retention. Retention levels are very low due to the competition aggressively targeting servicer’s customer-base to refinance them out from under the servicer. In order to retain the strong customer-base, servicers are utilizing early stage analytics and new customer retention tools to avoid a runoff, and capture refinance opportunities before other lenders swoop in.

We are also seeing a strong emphasis on FHA, managing the process and utilizing vendors like ourselves who can offer end-to-end capabilities to help a servicer throughout the delinquent portion of managing an FHA asset, all the way through liquidation or conveyance. The use of one vendor throughout that process can help them better analyze whether to convey, when to contribute, how to market the property and how to deal with title issues to minimize risk and cost.

Is the lower-volume environment conducive to both innovation and to reexamining existing teams to ensure they’re being used in the most efficient manner possible?
With lower volumes, both servicers and originators strive to reduce cost to improve margins. As a result, outsourcing certain functions helps them with the volume fluctuation and fixed costs. In addition, they look to automate more and utilize analytics to streamline staffing, make quicker decisions and reduce processing timelines.

What are the biggest challenges of those interactions in the vendor-management process?
Servicers and originators have improved tremendously in the management and oversight of the vendor management process. With the post-2007 increase in regulatory compliance, the entire process from selecting, onboarding and managing vendors have become more sophisticated and regimented. Managing vendors requires rigor and discipline to ensure the service level agreements, reporting requirements and system integrations are constantly adhered to. In this low volume environment, we see a segment of vendors consolidating, going out of business, or not investing in their technology or people due to declining revenues. The demand for well-capitalized vendors who offer a multitude of related products allows servicers and originators to rely on easier integrations while having confidence in the stability of the vendor.