Once a labor-intensive process, the collection of monthly payments from borrowers is increasingly aided by sophisticated technology. Indeed, the new class of megaservicers, such as Norwest Mortgage Inc. and Countrywide Credit Industries, whose servicing portfolios exceed $100 billion, wouldn't exist were it not for technological advances that have driven down costs, says Gary D. Muzzy, executive vice president at the mortgage division of Alltel Information Services, Jacksonville, Fla.
By the same token, the massive scale of these servicing portfolios gives a fillip to new technology, Mr. Muzzy said in a recent interview. His company is the industry's largest provider of servicing software, and it also services loans for lenders.
Mr. Muzzy also outlined how lenders are using servicing technology to cut costs and differentiate themselves from competitors.
Servicers are getting bigger and bigger. How does that affect the way technology is being used?
MUZZY: Clearly, it all comes together. One of the ways that they can permit themselves to go through this consolidation is using technology, because what they are looking for is scale. That gives them more units over which to spread technology dollars. That allows them an opportunity to differentiate themselves in their markets.
How are big lenders using technology to differentiate themselves?
MUZZY: Let's say somebody called in and said 'Why did my payment adjust? Give me a reason why my mortgage payment's different.' People used to be satisfied with a response of 'I'll get a letter out to you some time in a few weeks.' Now they're looking for instantaneous gratification, so what servicers will want is to be able to do a meaningful analysis and fax it right away.
There's talk that low-income, first-time homebuyers need to be serviced differently. For example, if they are late with their monthly payments, many lenders say these borrowers need to be contacted sooner than other borrowers. Can technology help with that?
MUZZY: Technology will allow clients to earmark those loans that they believe need this special handling. What we are looking for is a process by which the decision is made in the computer itself. That will drive the work to the appropriate work station for the specialist who can handle that particular problem on a timely basis.
How much has technology driven down costs?
MUZZY: You are getting to the $64,000 question. I don't know that anybody knows a real good number for sure. I feel intuitively that these large consolidations would not be considered without the technological capabilities that these financial managers were seeing in the business today.
In other words, technology allows megaservicers to reliably service these large portfolios and also at some savings?
MUZZY: Yes. The consolidation we're seeing uses multiple platforms, where a particular servicer will have more than one location that it services, and the technology allows them to move the work to the place where the resource is available.
For example, it may be that a servicer has a real good adjustable-rate mortgage department on the East Coast, but the collectors are really good on the West Coast. Technology allows the work to balance out, so that the adjustable-rate problems from the West Coast (are sent) to the East, and the recalcitrant collection activity may be handled by the West Coast man.
Is there a point at which technology investments will yield diminishing returns, and there won't be any sense in servicers' getting bigger?
MUZZY: I have not seen empirical proof of that yet.
If technology is so important in lowering costs, is there room left for midsize or small servicers in the conventional, conforming market?
MUZZY: Well, we hope so. I think they can use a different scale of identical technology. One of the advantages of outsourcing with us is that we can spread our research and development in our technology over a lot of units, and we hope make it economically viable for the midsize and smaller clients.
With so much reliance on technology, can it blow up in people's faces?
MUZZY: Our reliability and our computer operations have never been better than they are today.
Does your computer ever go down? Could you lose records of how much homeowners have paid on their mortgages?
MUZZY: It's been over a year since we had an unscheduled stoppage. We're getting into hurricane season here, and we have disaster backup routines that we rehearse during the year.
We send people to remote locations that we can take our tapes and our programs and run the backups. I would hope that our internal controls and our operational backups here are of first magnitude.
Is there anything you want to add?
MUZZY: Yes. I am not a technologist, I'm a mortgage banker by background. And I think my major mission here is to make sure that technology addresses and satisfies the business requirements. It is not the driver, but the facilitator for the business people to satisfy their business plans. I don't want the tail to wag the dog.
