Servicing Loans Sold to Secondary Market Requires the Right Mortgage Servicing Software02.10.2020
When it comes to servicing credit union loans, much of servicers’ attention is rightly focused on the member experience. While mortgage servicers strive to keep their members happy, servicing loans sold on the secondary market also requires paying attention to the needs of another important audience –investors and regulators.
Credit union servicers must be able to effectively manage investor reporting and regulatory compliance. By investing in the right mortgage servicing software, credit unions can efficiently service their loans in-house, creating value for their own organization and their members.
Retaining Servicing Benefits the Credit Union
In their Servicing and Subservicing Overview webinar presented by MBA Education and Mortgage Banking Solutions, representatives recommend retaining servicing. Retaining servicing rights for loans sold on the secondary market benefits both the credit union and its members. Selling loans to investors enables lenders to free up funds for additional lending.
Loan servicing can be a major source of income. In addition to the contractual servicing fee paid by each investor, credit unions are compensated for their servicing activities through ancillary income from late fees, commissions on optional insurance (credit life, accidental death, disability, and PMI), and miscellaneous fees and benefits of compensating balances from custodial funds.
Perhaps more importantly, selling the loans with servicing retained allows credit union members to maintain their relationship with the lender that originated the loan. Historically, credit unions have been known for their commitment to customer service and putting their members first. By focusing on customer engagement, credit union staff build lifetime relationships and customer loyalty. Retaining a servicing relationship with borrowers also offers opportunities for cross selling of additional products.
Transferring servicing to another institution jeopardizes member satisfaction. Customers whose loans are transferred have significantly lower satisfaction scores and more problems with payment and escrow accounts than borrowers who chose their mortgage servicer. JD Power’s 2019 “U.S. Primary Mortgage Servicer Satisfaction Study” found 54% percent of first-time home buyers say they are confused, angry or irritated when their loan is transferred.
Maximize Retained Servicing Effectiveness with the Right Software
When servicing loans sold to the secondary market, credit unions should use software that is specifically designed to handle the unique requirements of residential servicing. Servicing software must be able to handle investor reporting and regulatory compliance, in addition to customer-focused tasks such as payment processing, escrow administration, delinquency management and accounting.
Too often, credit unions try to service mortgage loans within their core processing system because they think there is a cost benefit of using the limited tools built in. This can be problematic, however, because while core systems support many products, mortgage loan functionality is often limited or subpar. Core processing systems may not be set up to optimally handle investor reporting and compliance requirements. Due to automation limitations within the core system, servicers often wind up performing many tasks manually. Manual processing may lead to errors, and it takes up valuable time that could be better spent providing personalized service to members. Don’t jeopardize members’ satisfaction during what is considered a milestone purchase, by utilizing technology with limited servicing functionality that interferes with staff being able to deliver a great member experience.
A credit union should utilize mortgage servicing software that can manage compliance requirements and investor reporting. The software should be able to support all industry-standard reporting methods recognized in the secondary market and produce reconciliation, remittance, delinquency, prepaid and trial balance reports according to the chosen reporting method.
Finally, the servicing system must be able to interface with the investors a credit union works with. The institution must select software that supports the GSE systems and financial institution core systems.
Mortgage banking is highly technology dependent. From the time of the loan application through the remaining life of the loan, technology plays a key role in operations, risk management, and regulatory reporting. Don’t settle by using a system that isn’t focused on mortgages.
Instead, invest in mortgage servicing software that facilitates adherence to regulatory and investor requirements. Select a vendor that has a proven record in the industry and good relationship with investors. By doing so, credit union servicers can maximize efficiencies, giving them more time to deliver prompt, personalized customer service to their members.
Susan Graham is president and chief operating officer of FICS (Financial Industry Computer Systems), a mortgage software company.