Abstract: mortgage subservicing stage is set for a clash of the titans. Big names are entering the subservicing business, which looks likely to undergo consolidation such as swept the primary servicing market in recent consolidation in primary servicing partly explains the newfound popularity of subservicing -- a market which some maintain has doubled within the past year. With the emergence of a new class of so-called megaservicers, it became popular opinion that one should either be a top-20 mortgage servicer or quit the business. Now, however, subservicing is being re-evaluated as an alternative, a middle-ground between the extremes of abandoning mortgage servicing or dominating it through huge technological investment. Subservicing means the mortgage firm keeps its ownership of the servicing asset, but outsources the servicing function to a third-party which has the requisite economies of scale. Subservicers, in turn, often use a service bureau's computer system, while the subservicer provides staff experienced in different types of loans. Besides technology considerations, subservicing is gaining impetus from financial institutions' current focus on the customer relationship. If the mortgage firm goes for a so-called arrangement, anytime the homeowner corresponds with the subservicer, he is under the impression that he is dealing direct with the firm that has his mortgage. Private-label to predominate Although only half, at most, of today's subservicing is done on a private-label basis, that arrangement is expected to become the norm. The transparency of the subservicer to the customer will be paramount, says Todd Bjorklund, senior vice-president of Norwest Inc., and the man in charge of its subservicing. Larry Walker, executive director of the real estate and mortgage industry division at Electronic Data Systems (EDS), agrees that subservicing clients will demand private-label treatment. It's not just commercial banks that want to own the customer relationship so that they can sell many product lines to one person, he says. Even monoline mortgage banks don't want to cut off future possibilities: entry into new businesses or co-marketing arrangements. Mortgage bankers didn't realize until recently that managing customer relationships had to be one of their core competencies, along with managing credit risk and interest-rate risk, Walker says. (Both executives expect subservicers will in the future have to meet predefined benchmarks of customer satisfaction.) pair also agree that lenders are drawn to economies of scale while keeping mortgage customer, but, not surprisingly, they go head-to-head on who will be the dominant provider of subservicing. Technically, Dovenmeuhle Mortgage, Schaumburg, Ill., is still the largest subservicer. Norwest briefly eclipsed Dovenmeuhle's lead by buying Prudential Home last year. deal had Norwest subservice a $30-billion mortgage portfolio until such time as Prudential Insurance Corp., Pru Home's parent, could find a buyer for it. (Norwest says it was not prepared to pay what Prudential wanted for the portfolio.) A group of buyers, led by Citicorp Inc., Stamford, Conn., has just been found. jumbo-loan portfolio, which Norwest subserviced since last May, is to be transferred to its new owners at the end of this year. Shaking up the ranks Norwest, which had announced its intention to become a $150-billion subservicer prior to the sale of the Pru portfolio, said afterward that the sales agreement would not affect its plans. Although Norwest currently is in limbo, with effectively no subservicing in place, Bjorklund says, after having 18 months of being the largest subservicer in the nation, we are confident of attaining our planned $150-billion portfolio within five years. However, other subservicers remark that, despite Pru, Norwest was not perceived as a subservicer until it announced its subservicing intentions this spring. …
Publication Year: 1997
Publication Date: 1997-09-01
Language: en
Type: article
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