Subservicers will need to do a lot more than subservice pretty soon, according to the head of the largest company in the field.
Clients are going to be looking for a little bit more than just merely their partners performing the loan servicing function, said Gregory Tornquist, recently promoted by Cenlar FSB, the nation's largest subservicer, to be the company's chairman in addition to his previous posts as president and CEO.
The question Cenlar and others in the business need to answer is "how do we as subservicers help them grow their businesses in other ways?" Tornquist said.
The bulk of any changes in the subservicing business have been in the last six or seven years because of the mortgage bust. "Prior to [six or seven years ago], servicing rights were concentrated in the hands of four or five large banks, they had a huge market share.
"But with the financial crisis and Basel III, they have shrunk their overall market share. That has really enabled different business models and different companies, a lot of which are our clients, to grow," Tornquist said. As a result, subservicers have gained more business over that period than it did in the 15 years prior.
Until now, many of these companies looking to outsource their servicing function were interested in two things in a provider: the technological capacity to handle the loans and strong compliance with the new rules.
But later this year and into next you will start to see more and more of them looking beyond that.
"Going forward I think it is going to be more about the individual client's business model. Now they will be looking at 'how will you help me grow my business,'" he said.
Because of that, Cenlar doesn't see itself merely as a subservicer, but as a company that allows its clients to participate in the mortgage business. It believes it is not just helping them grow their servicing portfolio but all aspects of their mortgage operations, Tornquist explained.
Right now, subservicers are focused on helping clients deal with compliance and capacity issues.
Each client has a different approach to the servicing function. Some firms have a consumer-centric model, like banks and credit unions.
For those companies, subservicers can help them promote their other product offerings, like deposits and consumer loans to their borrowers. This is something that can be easily integrated into the subservicing function because they are already in contact with the institution's customers, Tornquist said.
Their needs from Cenlar are different than the firms who are investors in mortgage servicing rights. Those players are more interested in data that will help them to manage the risk and seeing which segments of the portfolio are performing better.
They can provide analytics to help them defend their portfolio, by giving these customers information on clients likely to prepay because they are considering a refinance or relocation, he said.
Some ideas may come from the clients themselves. Cenlar is speaking with them about how it can help develop their business in other areas besides servicing.
It is looking to do more than doing just the basics of answering calls and processing payments, said Tornquist.
So it is not one homogeneous client base that Cenlar is dealing with, he said.
"The reality is that we have about 150 different, distinct subservicing portfolios. Each client is different in what they want, how they want their customers handled and in their processes," Tornquist said, adding it is about how you go about giving your tools, capacity and talent to each client to let them use in the best way they see fit for their business.
Like other third-party service providers in the mortgage industry, Cenlar is seeing more attention paid to it from the companies which have hired it. This is because regulators like the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau is demanding it.
So Cenlar has created a portal to help provide clients information about their own portfolios, as well as the policies and procedures in place at the subservicer.
There has been a material increase in the number of compliance personnel lenders (and even other vendors) are sending to visit Cenlar's operations. It now has a whole department whose function is to answer compliance requests and manage oversight visits from clients, Tornquist said.
He doesn't think this required level of scrutiny of third parties will go away but he believe over time it will get easier for companies like Cenlar to comply with these requests.
Even the Federal Housing Finance Agency's proposed non-bank servicer capital requirements could affect Cenlar's business, Tornquist said.
It has nonbanks as clients and if their business grows or contracts because of this rule, Cenlar will feel the effect.
But on the other hand, a lot of its competitors in the subservicing industry are nonbanks and that could end up benefiting Cenlar's ability to bring in new clients.
Tornquist started at the Ewing, N.J.-based company in 1987, and has spent virtually his entire mortgage career there. Cenlar holds a thrift charter, even though it no longer has a retail deposit gathering operation or lending business so as not to compete with its clients.