In today’s evolving mortgage industry, servicers are frequently encountering new challenges impacting their businesses. Over the past few years, servicing has become increasingly difficult due to the changing complexities of the regulatory environment, additional default management responsibilities of servicing departments, and enhanced investor reporting requirements.
In response to these changing demands, servicers need new tools to assist in automating and managing the complex tasks required for effectively maintaining payments, default issues, investor reporting and compliance. Although many servicers see the need for these tools, there is hesitancy to jump into a full servicing platform conversion – what some might refer to as a complete “rip and replace.” But why?
The three main reasons mortgage servicers push back on converting to a new platform include the fear of change itself, the preparation and planning for the conversion process, and training staff on a new system. The good news? Taking the following steps can help ensure a conversion goes smoothly.
Prepare the process
Determining what is needed from the new servicing system is the first step. Every servicing department has its own set of unique requirements with regard to volume, complexity of products, and whether it is servicing its own loans or servicing loans sold to investors.
As a servicer begins evaluating new platforms, there are a few key questions to consider in the process planning phase, including the following:
What investor reporting requirements do we have?
Do we work primarily with Fannie Mae and Freddie Mac, or will we also work with the U.S. Department of Housing and Urban Development, the Federal Housing Administration, or private investors?
Are our loans primarily residential, commercial or a mix of both? and
What are the accounting requirements for the management of cashflow for the collection of payments, as well as the disbursement of funds?
Regardless of their positions, all management team members must actively participate in the strategic planning process to ensure that the institution selects the system that is the right fit and has “buy-in” on the conversion process across the board. It’s generally best to convert the system in its entirety, rather than piece by piece, to ensure the overall integrity of the servicer’s operations.
Technology selection: key areas to consider
Once the conversion plans are ready, a servicer must evaluate and select the technology it wishes to implement. With many options available in the marketplace, there are four key areas that every company should consider when comparing servicing platforms.
1) Key functionality of the technology
The most comprehensive software solutions possess the ability to perform smoothly from the point of loan boarding through the final payoff of the loan. The software should handle payment processing, daily cash balancing, escrow administration, remittance and reporting to investors.
In addition, servicers should also evaluate how the platform executes default management and loan modification processes, as well as what options are available online for consumer access and banking. Finally, the system must be routinely updated for regulatory compliance in each of these areas.
2) Integrate into the loan origination software
For optimal efficiency, a servicing platform should also integrate seamlessly with the loan origination software and share common elements, eliminating the need to manually re-enter data and ensuring the integrity of all loan information. A strong integration will also provide an efficient means of retrieving required origination data when selling loans into the secondary market, whether servicing retained or released.
It would also be advantageous for servicers to actively seek out a technology platform with robust reporting capabilities, including necessities such as electronic storage and retrieval. Strong reporting capabilities would not only provide an immediate method of delivering the plethora of required statements, notices and other important information to the borrower, but also offer the reports and required paper trail needed to meet applicable regulatory requirements.
4) Data integrity
Servicers today must efficiently communicate with a wide range of parties and navigate increasingly complex regulations and loss mitigation programs. This requires that servicers have easy access to, and full control of, all of the loan, investor and accounting data within their databases. Strong data integrity ensures that the servicing software can support both the current and the future regulatory landscape, investor demands, elevated default rates, and borrower demand for online access to data. It should also position servicing staff to successfully manage a host of transactions, such as irregular payments, prepayment penalties, charge-offs, deferred principal transactions, incentive payments and other types of transactions.
Prepare the technology
Preparing the technology itself begins with the most critical step of all: ensuring the data is ready for the migration. Take time to fully understand how the data is stored on the original system so that the new system receives the most accurate information possible. In order to easily replicate what they need in the new servicing system, servicers must fully understand the inner workings of the current system.
Take advantage of conversion services offered by the new servicing system to guarantee that all data, including history, documents and reports, is converted. Servicers need to make certain that the new system has constant access to all information to efficiently service your loans.
In addition, servicers need to be aware of how programs operate and reports are generated in the new system. As a way of comparing the two, run parallel program results and reports from both systems to ensure that the new servicing platform can replicate expected results.
In even the most seamless conversions, there are small issues that will pop up – a data field that doesn’t migrate correctly or may not have been scheduled to convert or an auxiliary integration that generated unexpected results. By constantly testing and remaining primed to troubleshoot issues, servicers are more adequately prepared for the obstacles that will inevitably occur.
Prepare the people
Without a helpful team of experts available to support the user, a conversion can become derailed before it even begins. In order to circumvent this issue, servicers should focus on working with technology vendors offering a hands-on approach to customer communication, providing support from day one and throughout their relationship.
No other aspect of the pre-conversion process is more important than preparing the team and becoming proficient in using the new system before the new technology officially goes live. Ideally, a solution provider will have a range of resources available to address customer questions in a timely manner and also will be able to resolve issues with as little turnaround time as possible. Additionally, on-demand webinars, eLearning classes, in-person training, phone support and “conversion schools” can assist the staff to better utilize the new system.
Servicers also should communicate with customers regarding any potential impact they may experience on their end. If systems will be offline during the conversion process, communicate that, as well as any changes to logins for online access or the need to re-establish payment information, etc., well beforehand so that customers are prepared.
Although transitioning to a new servicing platform can appear to be a daunting task, by putting in the necessary planning to prepare for implementation, a servicer can be better equipped to handle today’s ever-changing regulatory environment.
Rather than simply flipping a switch and jumping into a new technology platform, servicers can significantly reduce issues by adequately preparing a well-thought-out process and adequately preparing the technology and their staff for the changes to come. Instead of continuing forward with outdated technology, follow these key guidelines, and satisfy both your own business needs and today’s current regulatory requirements.
Susan Graham is president and chief operating officer of Financial Industry Computer Systems Inc., a mortgage technology specialist that provides cost-effective, in-house mortgage loan origination; residential mortgage servicing; and commercial mortgage servicing technology to mortgage lenders, midsize banks and credit unions. She can be reached at email@example.com.