DS News - Bank of America

76 and servicers—the cost of hiring and training expert personnel required in the mortgage industry has risen. e MBA found that personnel expenses averaged $4,801 per loan in 2016, up from $4,699 per loan in 2015. While the industry seems confident that we're seeing a strong recovery, even the most successful servicers are still working to increase efficiencies and margins while controlling costs. To that end, servicers may want to pursue a strategy that bundles previously disaggregated solutions— particularly collateral disposition, investor claims, and loss analysis. THE COSTS OF A POST-CRISIS ENVIRONMENT Every analysis of industry operating costs and performance over the past decade revealed the same significant costs. ese include the costs of acquiring servicing rights, personnel, technology, support costs (risk, finance, compliance, HR), overhead (occupancy, office of the CEO), as well as a small portion of the budget dedicated to ancillary services (primarily vendor payments and professional fees). But since the crash, compliance costs have taken a much larger share of the servicer's budget, and the costs of ancillary services— those functions typically outsourced to third- party vendors—have risen significantly. A large list of new regulatory and investor requirements post-crash has contributed to the increase in compliance costs. e cost of noncompliance has risen so steeply and the regulator focus on the industry has been so intense, that servicers have been forced to spend more money in this area. On the vendor side, once the CFPB made it clear that the servicer would be responsible for any compliance violation allegedly perpetrated by any of its vendors, the cost of vendor management went through the roof. One area in which vendor mistakes can seriously impact the servicer's compliance risk exposure is the collateral disposition or "conveyance" process. is currently disaggregated basket of services includes property inspection and preservation, hazard claims adjustment, and investor claims processing. Fortunately for servicers, these unique functions, which are generally outsourced by the servicer to a variety of vendors, can now become part of an aggregated specialty services strategy. A NEW KIND OF BUNDLED SERVICE e mortgage industry was introduced to bundled services decades ago when the industry's largest title companies began offering menus of component back-office and field services generally tied to title and other products. Many offered these services in discounted bundles for servicers that committed to title or technology purchases. During the height of the foreclosure crisis, buying bundled default-related services helped lenders save money at a time when they were spending more on these services than ever before. Unfortunately, not every servicer was satisfied with the quality of the underlying services, enabling smaller specialty providers to continue to do well despite intense competition from the large title company- based outsourcers. Finally, as regulatory scrutiny and the cost of service for these outsourcers began to climb—against an overall drop in default volumes post-crisis, to boot—the economics of these arrangements became less appealing. A specialty services supplier, in contrast, focuses on quality first, differentiating itself from a categorical outsourcer. e larger specialty providers have also responded to the erosion of quality and price concessions on the part of title company-based outsourcers by offering suites of services that complement each other without the requirement that the lender purchase a complete bundle in order to achieve cost savings. Rather than holding servicers hostage for lower costs, specialty service providers build synergies that provide greater efficiencies to servicers without compromising quality standards. THE PERFECT FIT Traditionally, servicers have worked with a variety of vendors as loans moved through the default process into foreclosure and then for REO disposition or conveyance. While some functions made sense to bundle, most were handled by individual specialists. e notable exception was asset management, where a single large firm would handle property preservation, REO valuation, marketing, and disposition. "Every analysis of industry operating costs and performance over the past decade revealed the same significant costs. These include the costs of acquiring servicing rights, personnel, technology, support costs (risk, finance, compliance, HR), overhead (occupancy, office of the CEO), as well as a small portion of the budget dedicated to ancillary services (primarily vendor payments and professional fees)."

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