Companies that provide software and support to mortgage servicers are steadily losing business or showing little growth, as more lenders shift to in-house systems.

Jeff Lebowitz, principal of SSP Associates, Silver Spring, Md., said that only 32.9% of mortgage servicers use an outside vendor, or service bureau-down from 55% a decade ago.

"Service bureaus as a whole have not been quick enough to respond to the needs of servicers," said Michael Hyman, senior vice president for loan production at Wendover Financial Services Corp., a Greensboro, N.C., subservicer.

Over the years, Mr. Lebowitz said, servicers have gained experience and confidence in managing their own systems.

Moreover, the largest servicers say vendor software cannot accommodate their gigantic portfolios. Some have had to split their data bases, running the same software programs on two or three machines, to handle all the loans they service, Mr. Lebowitz said. They then have to reintegrate the data for reporting.

To recapture customers, the service bureaus will have to retool their systems "so they can scale up several million loans," Mr. Lebowitz said.

Right now a paramount need, Mr. Hyman added, is for integration tools that let users access information from their desks using a laptop computer so, for example, a customer service representative can answer questions faster. "Those types of things are available now, but not as part of the basic packages," he said.

Sadu Thinakal, president of the mortgage products division at Fiserv, South Bend, Ind., is skeptical about shrinkage of service bureaus. He said industry consolidation has skewed the data.

"I think that if you look at the number of loans in service bureaus, it will be the same or slightly higher," he said.

Mr. Thinakal said there are still sound economic reasons to use vendors. "No one can really afford to have an in-house group develop and maintain systems. And what if the 30 people responsible for upkeep walk away? It's a huge risk."

But some recent developments contradict Mr. Thinakal's view. Over the last 18 months, HomeSide Lending, Jacksonville, Fla., has moved almost all its loans off the platform of neighbor Alltel Information Services Inc., the leading service bureau, onto a proprietary system it acquired when it absorbed Barnett Mortgage Co. in 1996.

"We wanted to have a system we could modify ourselves and not be dependent on getting in the queue," said Hugh Harris, chief operating officer at HomeSide, the industry's sixth-largest servicer.

"The advantage of using a service bureau is you don't have to build a huge technology infrastructure; you can outsource that expense," he said. "But we had the infrastructure anyway. If you're starting de novo, it can cost a huge amount."

Wendover, a division of Electronic Data Systems Corp., uses Alltel's system but also has some bells and whistles that were developed in-house- "the best of both worlds," Mr. Hyman said.

To recapture servicers, vendors not only must retool their systems to accommodate giant portfolios, but also must "make their systems more intelligent," Mr. Lebowitz said. This would include "data warehousing," which lets servicers pinpoint customers who are apt to refinance or to buy nonmortgage products that the lender also offers.

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