TheMReport — News and strategies for the evolving mortgage marketplace.
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FEATURE Existing methods of managing servicing portfolios are yielding new applications and new advantages for lenders. By Phil Britt R quiring are basing their acquisi- tions on the ability to do the servicing more efficiently than those selling the servicing rights. Selling the rights provides an immediate boost to the balance sheet and capital, but retain- ing the rights provides more income over time, explains, Jim McDonald, president of McDonald Computer Corp., a Southfield, Michigan-based mort- gage servicing software firm. McDonald estimates that the servicing rights for a performing 28 | THE M REPORT while others are in the acquisition mode. Most of those doing the ac- egulations and the additional complexity of dealing with delinquent mortgages are having many lenders selling portions of their servicing rights, $100,000 loan can be sold for about $1,000, or 1 percent of the loan value. This is far less than the amount the rights would have generated only a few years ago, when the value was about double. With the immediate income potential so low, in most instances, it's better to hold on to the rights for the ongoing income stream and to acquire servicing rights from others to fill any unused capacity, he argues. The price for servicing rights could fall further if interest rates con- tinue to drop. having the ability to print cash, agrees David Lykken, managing partner with Mortgage Banking Solutions, Austin, Texas. Some of the firms that have Having servicing rights is like been the most aggressive in ac- quiring servicing rights, Ocwen Financial and Nationstar, are focusing most of their efforts on distressed debt, the rights of which are priced less and require more specialized handling than prime loans, says Ken Alverson, partner and head of the consum- er lending practice at New York City-based Novantas, a research and consulting firm. "There are basically two categories of folks, one of which is those who pay their monthly bills without fail. Servicing these loans can be very predictable and very profitable, but if the loan is underperforming and you're not well equipped, retain- ing the servicing rights can result in a loss," said Craig Martin, director of J.D. Power and Associates' mortgage practice. Martin points out that the sure to comply with the guidelines and must ensure that they not only have appropriate processes in place, but that they also under- stand the new rules and adhere to them as well, Many lenders don't have the additional resources for the " Martin said. Consumer Financial Protection Bureau (CFPB) is proposing new mortgage servicing rules that, if passed, will go into effect in early 2013. Once in place, it will saddle mortgage servicers with new chal- lenges in providing high levels of service, while ensuring the proper processes and procedures are in place to meet the new guidelines. "Servicers will be under pres-