Even as mortgage servicing rights transfers set new records, the sheer number of loans on the books represents a positive opportunity in this year of transition following the past couple years of peak origination volumes. But as the pace and pressure of the MSR market grows, so does the potential risk for both sellers and buyers.
For many lenders, selling bulk MSRs generates revenue that they can re-invest in originating new loan products to support changing borrower needs. For bulk MSR buyers, it’s an opportunity to scale as servicing costs continue to increase.
However, the current MSR market is different from peak cycles in the past. The combination of MSR demand, a challenging economic environment and the fact that CFPB is considering whether to propose amendments to Regulation X means MSR sellers and buyers must manage the exchange of high volumes of information in record time, without affecting quality. That includes newer types of information like pandemic-specific borrower assistance records.
These circumstances are driving MSR sellers and buyers to complete bulk transfers of servicing portfolios at speeds approaching flow MSR transfers, which enables both sides to differentiate themselves in this competitive market. And therein lies the risk.
The key to any effective MSR transfer process is the exchange of accurate loan file information that is collected and stored in the seller’s servicing system, borrower portal, reporting warehouse and document repositories. For both buyers and sellers, successful exchanges are also important for their reputations with borrowers and business partners.
With increasing regulatory focus on verifying that servicers are treating borrowers fairly, creating a good customer experience before, during and after the servicing transfer is vital. This includes delivering on borrower expectations during the transfer and providing a warm yet knowledgeable welcome from the new servicer to set a great first impression.
Simultaneously, loan servicers must also meet the expectations of all their partners and stakeholders who also depend on a smooth exchange of information. That includes investors, property insurance companies, taxing authorities, mortgage insurance and guaranty entities, and others.
Traditionally, however, MSR exchanges are neither easy nor cheap. That’s because most MSR sellers and buyers often spend hours having human teams review documents and reconcile data, which makes transfers slow and costly. In fact, it often takes weeks and even months to complete bulk MSR transfers.
During bulk MSR transfers, loan data is typically exchanged through data tapes, spreadsheets and documents – which make data reconciliation not only difficult, but prone to delays as well—especially when issues aren’t caught early. And with flow MSRs, the loan documents play an even more critical role due to the limited age of the loan.
There’s really only one surefire way to make MSR transfers and related activities less costly, and that is by taking what has traditionally been a manual, “hands-on” process and making it “hands-off.” For that, you need the right technology.
With advanced AI-powered document automation, MSR buyers can ingest thousands of loan files, audit them for required documents, identify the most current document versions and re-index the documents to their own taxonomy. Having a fully indexed file of documents in the purchaser’s repository would also provide buyers with the option to extract additional data that is not often part of the selling servicer’s servicing system data feed and create a pre-indexed loan history for any borrower inquiries. They could leverage this data for their borrower outreach and retention efforts, too.
Perhaps most importantly, AI-based document automation plays the proverbial canary-in-a-coal-mine role exceptionally well when it comes to data quality.
AI-based document analysis enables MSR buyers to extract key data elements during the document ingestion process to quickly compare that data to the prior lender’s data extract or servicing system export. This gives servicers an instant data read before final data reconciliation takes place, so issues can be identified and resolved ahead of time.
All of these processes could be as hands-off as a servicer wants, enabling them to free staff from performing manual reviews and comparisons and use their expertise to investigate exceptions.
The current MSR market represents a golden opportunity for buyers and sellers to maximize returns. As it stands, however, the risks associated with manual processes will dampen those returns and potentially erode borrower trust when exchanges go poorly, as some inevitably do.
If there was ever a time to apply today’s technologies to MSR transfers, it’s now.