As mortgage rates continue to rise, originations are not the only side of the industry affected. So how is the servicing sector reacting?
“The most basic thing that we’re seeing right now is mortgage rates increase and payoffs decrease because of fewer opportunities to refinance a loan,” said Eric Friedman, managing director of Servicing at Acra Lending. “At the same time, a decrease in new loan originations doesn’t help our portfolio grow, because you’re not really adding loans at the same pace you may have been adding in a lower-rate market.”
Friedman said that as volume slows down, they also see more calls from borrowers wanting to understand what their options are in terms of refinancing a loan at a lower mortgage rate or looking at loan modification.
“With fewer opportunities to refinance, we are seeing a direct correlation to an increase in mortgage rates and a decrease in payoffs from the number of calls that come into us including options to retain the property due to increases in property taxes and ARM adjustments,” he said.
Additionally, the tighter profit margins for lenders mean that companies like Acra Lending must take a closer look at operating costs.
“As consolidation takes place, we have to be more thoughtful around where our money’s being spent,” Friedman said. “It really forces us to look at technology, workflow, integration and doing things in a manner that is not necessarily people-dependent.”
Acra looked at opportunities to work with third parties that have the infrastructure to take on parts of the servicing process, he said. The company needed to identify a way to make sure its investors’ loans are being serviced appropriately while still meeting the needs of its borrowers.
“We could have thrown bodies at this to handle all the phone calls, but that would have been a fixed cost that just increased,” he said. “Instead, our subservicer was able to provide us scalability at a reduced cost.”
Friedman said the servicing business right now is a “delicate balance between complying with regulations and servicing a loan for investors.”
“The big focus right now for us is fair servicing and ensuring that we’re treating all borrowers in a fair, consistent and uniform manner,” he said. “And at the same time, operating within the contracts that we have with each of our private investors.”
Communication is key
According to Friedman, the most important thing brokers need to understand about servicing is that the information they collect with the borrower is critical for servicers to establish contact once that borrower is being serviced by them. Often servicers run into problems with contact information, such as telephone numbers that are no longer in service or a cell phone that won’t allow them to leave a voicemail.
“The quality of the information collected at the loan origination is critical for us to establish contact and get ahold of the borrower and really set the tone for how the loan is going to be serviced,” he said.
Communication really is key. Borrowers need to understand that their servicer is there to help them, answer any questions and make their mortgage experience positive.
“Many of our borrowers have multiple loans with us, so it’s critical for us to create a positive customer experience for them,” he said. “It all starts really with the initial contact.”
Acra reaches out to borrowers at the beginning of the loan, sending welcome packages and emails and making phone calls to establish contact and let them know about their loan – the terms of the mortgage, when their first payment is due and what Acra’s role is.
“But if we can’t get the borrower to read our letters or our billing statements, or answer our phone calls, it’s really difficult to establish that relationship and talk to them about what the experience is going to look like,” Friedman said.
Many of Acra’s borrowers are located outside of the United States, so the company offers online access to allow those borrowers to self-serve, making online payments, looking at billing statements and asking questions when the company’s hours might not align with the borrower’s time zone.
“We’re really here to help,” Friedman said. “We want to make this an easy experience, a painless experience, but we really need them to engage in communication to allow us to help them.”
Acra Lending’s servicing business
What sets Acra Lending’s servicing business apart, Friedman said, is that it retains servicing on every loan it originates.
“We’re highly invested in the experience, from cradle to grave,” he said. “We want to make sure that the borrowers are offered realistic opportunities to perform on the loan and at the same time ensure that we are meeting the expectations of our investors, so they continue to buy our loans. Fortunately, our portfolio performs extremely well. Our delinquencies are back to pre-Covid numbers, which even then was below other non-QM servicers.”
The company has built its servicing platform to maintain tight guardrails, looking at exceptions and requiring physical touch around things that don’t look normal.
“We don’t let things just sit,” Friedman said. “We’ve built a deep set of exception reports and are very aggressive in getting a hold of the borrower and trying to understand their intentions and fix things as quickly as we can.”