Servicers’ Status for 2019? It’s Complicated
December 24, 2018
Source: National Mortgage News
Mortgage servicers should expect reliable profits in 2019, but origination challenges may spill over into their sector in the form of operational complexities and higher costs.
Servicing portfolio runoff could decrease and mortgage servicing rights valuations could increase in 2019 in ways that bode well for servicers, but continuing constraints on originations also could make their work more complex and expensive.
There may be more stress on subservicers’ budgets
Subservicing work might be more complicated because clients that retained historically, and are starting to sell, will only need subservicers to handle their servicing in the short-term, from after origination until it is sold.
“A transfer, depending on where you sit, may or may not be good for your business,” said David Vida, executive vice president at Specialized Loan Servicing, a subsidiary of Computershare.
So can companies make money as an interim servicer?
“People need to pay you the right amount of money to board and de-board a loan. That’s where automation, technology, and a smart process make a huge difference,” said Vida. “It’s a thin-margin business. Our challenge is how to provide a strong customer experience while spending less money.”
The need to service second mortgages could grow
“Next year could be the year of home equity,” said Gagan Sharma, president and CEO at BSI Financial Services. The product is more complicated for monoline servicers to handle than traditional mortgages because of the mix of short-term draws and longer-term withdrawals that may be involved.
While most servicers and subservicers are largely expecting a continuing climb in home equity business as home prices and rates rise; they tend to also agree there are a couple of risks to this forecast.
The economy may be overdue for a downturn
“I worry about the economy,” said Sharma.
Among developments that could weaken the market’s strong housing and loan performance, or lower rates, are global turmoil, excessive damage from natural disasters, the spread of local housing bubbles, or excessive consumer debt.
“I don’t believe the housing market will be the cause of the next downturn, but if there is ever a downturn the housing industry will definitely be impacted,” said Sharma.
Mortgage delinquency rates could bottom out
“The Fannie delinquency rate is the lowest is has been in some time,” Sharma noted.
So long as no unexpected development such as a significant uptick in delinquencies occurs, next year could be a relatively good one for performing servicers with strong cost controls and technology.