With the mortgage industry hyperdiligent about loan reporting these days, it is turning to technology to bring servicing operations in-house while achieving the same cost efficiencies that traditionally have been achieved via subservicing arrangements.
In doing so, the lenders are seeking to walk a tightrope that balances costs against the need to comply with the myriad of regulations related to participation in government loan programs. Following this path, AmeriFirst Home Mortgage is turning to a Web-based platform in a bid to migrate from subservicing to internal servicing of government loans.
"The subservicer we were using was really performing the function poorly and our customers were paying the price," says Mark Jones, the president of AmeriFirst, a Kalamazoo, Mich., lender that has 30 branches in nine states.
AmeriFrist is servicing about 3,000 government loans. In shifting away from subservicing, it has signed a new agreement to use GCC Servicing Systems' G/SERV platform to manage the complex servicing requirements mandated by Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture Rural Development loans.
Technology from GCC, of Southfield, Mich., automates loan setup, cash management, escrow and insurance administration, investor reporting and accounting, default management and federal and state reporting. G/SERV modules also include standard and customized internal reporting, Web access to loan level information for internal personnel and external parties such as investors and borrowers. It also enables lenders to oversee the handling of their loans as they are serviced.
G/SERV is hosted by GCC and is delivered to lenders online in a software as a service arrangement, which is designed to lower costs and make the technology available to smaller lenders.
At AmeriFirst, Jones hopes the new technology will improve reporting to investors and other parties. That includes loans that are being paid versus those that are in delinquency — an important statistic because of the fact that participation in government programs is predicated on adhering to specific delinquency rates.
"The requirements being put forth by Ginnie Mae, (through whom AmeriFirst securitizes government loans) were not being properly followed and this put us at risk of losing the ability to work with Ginnie Mae," Jones said.
Although he did not disclose details on the earlier subservicing arrangement, Jones contends that loans were not being reported properly to the FHA, with issues such as loss mitigation inadequately addressed.
"If you don't [report on loss mitigation properly] the HUD insurance that is in place gets invalidated. Ginnie Mae holds us accountable even if we aren't servicing the loans," Jones says.
The migration of government loans to in-house servicing is part of an ongoing trend at AmeriFirst toward internal control. Conventional loans (backed by Fannie Mae and Freddie Mac) originated by AmeriFirst have been serviced in-house using GCC's technology since 2009. Previously, the lender sold all of its production to purchasers like Wells Fargo and Bank of America.
Jones says with government loans, AmeriFirst achieved sufficient size in conventional servicing to be able to hire experienced personnel to handle the complexities of servicing FHA/VA and other government mortgages. By automating the reporting, the lender has only had to hire four such staffers, instead of the 12 Jones said would have been needed without the automation.
GCC has turned concerns over compliance into similar business with mortgage lenders. "Continuous changes in regulations leave lenders vulnerable to noncompliance," says Jeff Cerny, vice president of professional services for GCC. "In some cases outsourcing is the best method for maintaining compliance, but not all subservicers are meeting the necessary requirements of investors."
Christine Pratt, a senior analyst at Aite, sees the bringing of servicing in-house as a trend among mortgage lenders.
"A lot of the smaller institutions 'white label' their mortgage processing," she says. "Customers are coming to the banks and complaining about poor service. The [banks think] that if they are getting calls, they might as well investigate whether it would be worthwhile to take the servicing back in house … they really don't want customers to be unhappy."
A number of tech companies stand to benefit as mortgage lenders seek to turn servicing into an internal activity. Core providers such as Harland, Jack Henry, Fiserv and Fidelity National Information Services offer loan servicing platforms.
