Retain Servicing to Increase Income
Another benefit to retaining servicing is the increased income from servicing loans the credit union sells on the secondary market. As with any function, there are some nominal costs. These typically include servicing staff, operating costs for the printing and mailing of all borrower notices, and a software system to process payments, track and disburse escrow payments, provide investor reporting, and manage the portfolio.
"Servicing our members' loans while taking advantage of the secondary market allows us to provide the personalized service credit union members are accustomed to," said Sue Wagner, vice president of Lima, Ohio-based Superior Federal Credit Union. "By selling loans and retaining servicing, we also generate fee income and gain the advantage of removing interest rate risk from our balance sheet."
For most credit unions, even the income generated on a portfolio of 200 loans can easily justify the expense of technology and personnel. With an in-house servicing department, growth is simplified because the largest expenses - salary and a technology platform - are fixed. Except for the incremental increase of operating costs, the major expenses will remain static.
"Our mortgage servicing rights are considered to be one of the most valuable of our corporate assets, and our servicing income is one of our most successful revenue-generating lines of business," Fuller said. "Our own warehouse loans, of course, allow us to capture all interest income from those monthly payments; additionally, the bulk of our portfolio is serviced for the GSE's and other investors, which assures us income both from service fees derived from monthly payments as well as cash incentives for participation in certain loss mitigation programs."
Automating Responsibilities of Servicing
Credit Unions need two things to ensure a profitable servicing operation: qualified personnel and technology.
On the technology side, having a system to automate as much of the data importing, investor reporting and back-office operations as possible is the key to maximizing profitability. The most important piece of technology is the servicing system. Top systems, such as FICS' Mortgage Servicer, integrate with the loan origination software to eliminate the need to manually input borrower information into the servicing system. Additionally, systems like Mortgage Servicer can handle all of the back-office operations, such as payment processing, escrow administration, investor reporting, delinquency management and accounting.
Servicing platforms must also be flexible enough to handle today's compliance requirements and modification programs. Mortgage Servicer, for example, can handle nontraditional payment options, modifications and delinquency collections.
Top servicing platforms, such as Mortgage Servicer also interface with the GSE systems as well as most other financial institution core systems to share data from the mortgage department to other areas of the credit union. This allows transparency between the member and the member service representative.
"Our mortgage servicing rights are considered to be one of the most valuable of our corporate assets..."
- Alan Puller, Manager Mortgage Servicing for WSECU
We utilize a number of FICS programs in order to increase the efficiencies of our own work processes, and to make our services more convenient for our borrowers," Fuller said. "It has been very easy for us to interface with the GSE's by using utilities which already exist within Mortgage Servicer, and have created our own customer interfaces to integrate with our loan origination system and deposit account platform."
A strong servicing platform means that the credit union can minimize the need for servicing staff. While qualified staff will be needed, credit unions can maximize their resources and control costs by automating as much of the process as possible.
"Washington State Employees Credit Union services more than 10,200 loans for nine different investors, and FICS' Mortgage Servicer helps us manage this portfolio with only 10 staff in the department," Fuller said. "With the software handling the heavy lifting of updating account records and generating data for reports, our staff can focus on the needs of our members and investors."
It may seem crazy to imagine mortgages being profitable in this day and age. But with credit unions showing they made smarter lending decisions during the past decade, retaining servicing can be just the change needed to boost income for the next decade.
Susan Graham is president of FICS.
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