Borrower Relations Narrow Mega-Servicer Advantages

Submitted by Ronald Tennant with Metrocities Mortgage:

MBA (5/21/2008 ) Murray, Michael
CHICAGO—Advantages for mega-servicers above small to mid-size servicers start to narrow when discussions turn to borrower relationships and outsourcing accountability, said industry experts here at the Mortgage Bankers Association’s Commercial/Multifamily Servicing and Technology Conference.

Ricci Bender, managing director at Helix Financial Group LLC, a Charlotte, N.C. international boutique financial firm, said Helix finds small servicers retaining the borrower with a strong customer relationship.

“We often see that they are closer to the borrower and possibly closer to the asset in terms of having an intimate understanding of the assets that they manage,” Bender said. “Often, a small shop will have better communication between the originator, servicer and management, and that kind of communication [creates] prudent customer service and efficiency. They often have fewer investors to answer to which tend to relieve pressure on the asset manager and servicer.”

Hal Collett, vice president of servicing at Prudential Asset Resources, Newark, N.J., said the definition of a “mega-servicer” depends on industry point-of-view, Collett added. Despite Prudential’s $60 billion portfolio, the dollar volume stems only from originations. Mega-servicers, by some industry perspectives, include originations and acquisitions and purchase of servicing rights.

“A mega-servicer is a servicer with a tremendous size advantage,” Collett said. “There is probably a point-of-view discussion as well. Compared to an average loan servicer, they grow their portfolio significantly with the acquisition or purchase of servicing rights and not necessarily originations.”

Bender said small to mid-size servicers are more likely to create that first point in a portfolio. “I think that creates a perspective and an ownership—emphasis on ownership—of the borrower in the relationship and the asset,” he said.

Larger servicers, however, could invest more in technology, develop greater expertise in specific areas—including disaster recovery—and set market standards. Because of the size and strength of their balance sheet, larger servicers could also absorb more losses in their portfolios.

“They are fast and efficient in primary servicing, special servicing and asset management,” Bender said.

Helen Principato, vice president of loan servicing at PPM Finance Inc., Chicago, said she has nothing against third-party vendor assistance as long as servicers outsourcing loans retain accountability.

“I’ve never been a big, big proponent of outsourcing,” Principato said. “[The correspondent] loses the ownership of what they are passing on to me. They are not taking responsibility for what they are passing through to me, and I’d like them to take that ownership back. I am not saying—like a report card—that all of [the loans] are a failure. I think they are passing me paper. They are not looking at what they are passing me, and I want them to take back ownership of their companies—of what they are doing. They have to be responsible for what they are passing on to me…they do have the staff to read what they are passing on to me.”

Collett said servicers of all sizes need to integrate outsourced vendors into the servicing process rather than simply hand off problem loans and not take responsibility.

“You have to find that fine line between standard quality companies that say ‘no’ versus” third-party vendors who say they “can do everything and are happy to do it,” Collett said.

Bender said portfolios are doing very well right now, but it could be a matter of time until problems arise and, again, borrower relationships remain paramount.

“The teams in most boutique shops are well cross-trained, but you want to make sure that those people are the ones that are staying in front of your borrowers, spending their time wisely cultivating their client relationship and proactively managing what could become problems in the future,” Bender said.