The vibrant refinancing market merits servicing technology that delivers data at the loan- level-a far cry from aggregate loan pools generated by Microsoft Excel-type databases, one person here believes.
A strong refi market and related loan payoffs often result in increased aggregation error in the amortization of servicing rights. Mortgage servicing portfolios end up carrying amortization on loans that are already paid-off, according to Shashi Vohra, vice president of accounting at Pentagon Federal Credit Union.
To reduce aggregation error, the nation's third largest CU uses Atlanta-based IPS-Sendero's DecisionServ, a valuation, analysis, reporting, and accounting solution for mortgage servicing portfolios. "We mainly use DecisionServ to value our servicing rights, and as a reporting tool to manage monthly amortization and impairment of servicing rights," Vohra said.
Though Pentagon FCU's accounting staff is comprised of 35 employees, four of them work with the software.
"One of the big benefits is that DecisionServ allows you to calculate valuation at the loan level," Vohra explained. "Loan-level data are a big step forward when you're projecting amortization expense and impairment. You're getting more accurate amortization because you can reduce and alleviate errors related to aggregating loans."
The $5.2-billion CU started selling loans in the secondary market and retaining servicing in June 2001. As of year end 2001, Pentagon FCU had 732 loans with an unpaid principal of $96 million in its servicing portfolio. The portfolio increased to 825 loans with an unpaid principal of $126 million at year end 2002, with few delinquencies or foreclosures.
One year ago, Pentagon FCU was analyzing its servicing portfolio by grouping similar loans at similar interest rates using a Microsoft Excel-based model, he said.
"The Excel database was difficult to maintain and update," Vohra continued. "Every time we had an additional sale, we had to create additional loan pools, and copy and paste all of the formulas into the new cells."
With DecisionServ, Pentagon FCU sends a file from the mortgage loan servicing system to IPS-Sendero every month. IPS-Sendero then reformats and loads the file into the DecisionServ database.
The 490,000-member CU can access the database from the IPS-Sendero website and run the DecisionServ model to update the value of servicing rights, amortization, and impairment of the existing servicing rights portfolio.
DecisionServ's reporting capabilities are also handy, Vohra said.
"We can create reports on the fly, because the software is Windows-based. We can pick and choose fields we wish to include in the reports."
Reports may be run on market value, original book value, and accumulated amortization and impairment at the loan level, for example. The DecisionServ family of products includes Reporter, Analyzer, Accountant, and the December release of Modeler. The suite's loan-level capabilities are designed to provide advantages during due diligence and FAS 140 compliance.
DecisionServ is the first mortgage portfolio management product released since RF/Spectrum merged with IPS- Sendero in 2001.