Imagine mortgage servicers retaining 90% or more of their customers eligible for refinancing during major refi periods, reducing runoff to virtually zero. Is it a dream? Maybe not.

Most major mortgage servicers say it cannot be done. At least, they have not been able to retain even 50% of the refiable loans in their servicing portfolios since the latest refinancing boom started last year.

"The most aggressive mortgage servicers would kill to achieve a 20% recapture rate during heavy refinancing periods," notes Edward J. Elanjian, managing director of Cohane Rafferty Securities in Princeton, N.J., a servicing brokerage and financial advisory firm. "Of even the largest servicing firms, it's doubtful that as many as a dozen get close to that."

Enter the brothers Kelly, two entrepreneurs who say they can help servicers retain at least 80%. Indeed, the two managing directors of six- month-old Service Savers Financial in Fairfax, Va., say they have already helped one servicer retain some 90% of the customers they have contacted.

"If a financial institution gives us 10,000 names in their servicing portfolio, we believe that 80% or more will take the refinancing program offered them, staying on the books," says Keith Kelly, 36, managing director of marketing, who says he and his brother have spent about $100,000 to launch Service Savers.

Bravado? Absolutely. The Kellys' 80%-plus retention rate has only been achieved on a test basis on a list of 350 mortgage servicing customers provided by Service Savers' first client, Customer One Mortgage Co. Customer One is a Fairfax-based subsidiary of FT Mortgage Companies, the 13th-largest mortgage banking servicer nationwide, with a servicing portfolio of $61.6 billion.

Many mortgage servicers may easily dismiss the two brothers as young upstarts trying to upset the servicing apple cart. Between them, though, they have 23 years of mortgage banking experience. Keith is the former owner of his own mortgage banking company, Markee Financial Corp. in Fairfax, which he sold in 1991. Joe was a loan originator for Markee and two other companies for nine years. Joe also spent six of years as a sales and marketing manager for Prime Computer, which he left in 1989.

Customer One is clearly pleased with results to date. In early April, it gave Service Savers another 3,000 names - and it may not be to long before other mortgage servicing companies sign on. "Of the 3,000 names we just received, we already have a 100% retention rate," jokes Keith Kelly, 36, managing director of marketing, who had called the first two customers on the list earlier in the day.

Few mortgage servicers have worried about retaining existing customers during major refinancing periods, spending their energy and money instead on finding new servicing customers to replace the old under the theory that they are competing in a zero-sum game.

Keith and his partner, Joe, 37, who is general manager of operations, offer high profit margins. "The margins for our clients will be between 150 and 200 basis points," says Joe, who says their refinancing program actually has been under development for about five years. "So it's crazy, really, for mortgage servicers to devote their efforts first and foremost to bringing in new customers. They've got their priorities backward."

The Service Savers formula is simple. "A typical mortgage servicing telemarketer says he or she can lower a customer's interest rate on a mortgage say from 8 to 6.5%," says Joe. "The catch, of course, is that it will cost several thousand dollars in points and closing costs; of course, that's where they lose the customer.

"We don't do that," he says. "Homeowners want to have the lowest possible monthly payment at the least cost, and that's what we offer them. When we or our current telemarketing staff of five call customers, we offer them a lower rate at no expense to them. There are no closing costs; income and assets aren't verified, and the only credit check is of the customer's one-year mortgage history. As a result, 95% of the time the loan closes within 30 days and 80% of the time we've taken an application during that first conversation. The program's so simple it's difficult to say no."

When making their sales presentations to bankers - they have done so six times, based on marketing packages sent to the top 20 servicers late last year - the two Kellys play unpaid "testimonials" from consumers, recorded on their laptop computers.

"When working with us, there is no staffing, marketing, processing or other capital expenses for the mortgage servicer," Joe emphasizes, "and that remains the case, whether we're dong a test or full-blown program for them. As for ourselves, we're paid a commission when the loan closes. We make less commission per transaction than others but on the other hand we do a greater volume, and the servicing company's making a greater profit at the same time." The Service Savers telemarketers don't receive commissions per loan closed.

Keith says mortgage servicers are taking their time responding to Service Savers' presentations partly because it has turned the industry's business model on its head. Most servicers measure their success on how much business they close per employee and on their per-loan costs.

"We're offering the mortgage servicing community a paradigm shift," says Joe. "The issue here isn't about increasing or reducing costs per employee because they're not hiring additional staff; we are. And while the industry's preoccupied with buzz phrases such as 'retention' and 'runoff reduction,' we're focused simply on saving the customer money without hassle and at no expense. We deliver high profitability to the servicer while bringing value to the customer. It's that simple."

Joe and Keith say they hope to break the servicing industry of what they consider a bad habit, staffing up when interest rates decrease and letting people go when the Fed raises them. "One of the things we emphasize is that our program isn't simply about reducing runoff," says Keith. "With Service Savers they're bringing in additional revenue in any interest rate environment. When rates are decreasing, we're proactive, calling customers and enabling them to refinance at lower rates. And when rates are increasing, they can move from an adjustable to fixed-rate mortgage or from one ARM to a less expensive ARM."

Joe says "the biggest obstacle to working with Service Savers is that servicers have to figure out how to fit us in and implement our program." He adds that he tries to keep clients focused on the end game, higher margins and satisfied, loyal customers.

If their business proves successful, the Kelly brothers will likely attract a lot of imitators.

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