DS News

DS News January 2021

DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.

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Page 8 of 99

7 Journal HOW SMART FINTECH ALLOWS FAST LENDER DIVERSIFICATION AS REFI BOOM WANES No question, 2020 is one for the ages. Final 2020 origination volume will end up around $3.57 trillion, and we're servicing about $11.5 trillion in outstanding mortgages. In 2021, however, we'll have $1 trillion less in refis and over 5% of loans in maturing forbearances. e smart reaction to less origination volume is to diversify into servicing. To help you succeed here, let's break down 2021 servicing dynamics, starting with the market outlook. 2021 & 2022 MORTGAGE OUTLOOK e MBA predicts a whopping $3.57 trillion in mortgage origination volume for 2020, with 60% ($2.15 trillion) of that from refinances. Volume will drop to $2.27 trillion in 2021, with 57% ($1.56 trillion) in purchase loans and 43% ($1.9 trillion) in refis. at trend continues in 2022 with refis at just 26% ($573 billlion) of the projected $2.20 trillion total volume. Meanwhile, on the borrower hardship side, we begin 2021 with about 2.7 million for- bearances, 78% of which have been extended. CARES relief allowed for two 180-day incre- ments of forbearances, and defaults may rise as that relief ends in April. It's still fairly quiet in the mortgage servic- ing rights (MSR) market, with just $70.8 billion in MSR transfers for Q3 2020, the lowest since 2015 per IMF. MSR values have fallen by two-thirds the last two years as dropping rates fuel prepays and capacity constraints prevent rates from truly bottoming. But now is the time for strategic lenders to start gathering MSRs. THE ORIGINATOR/SERVICER PLAYBOOK FOR 2021 We've got a K-shaped economy in 2021, where you must optimize rates for strong bor- rowers or lose them. You also must care for and stabilize strained borrowers. e intuitive part is adding origination volume by refinancing those strong borrowers, retaining that servicing at record low rates, then benefitting as MSR values rise with rates. e harder part is that defaults will also rise as strained borrowers fail to recover and policy relief runs out. But you must do both if you're going deeper into servicing—or if you're an originator who wants to diversify into servicing. Rocket is a good example of this playbook. ey've told Wall Street they plan to service most of their 2021 originations to "thrive in all market conditions." For perspective, the latest public data shows they originated $213 billion through Q3 2020, so even as higher rates cause this to wane for them—and for the industry as a whole—re- taining your servicing is a smart offset. e value of that servicing rises with rates, and you get to own the lifetime customer experience. So how do you get equally strong at performing and nonperforming servicing fast? Unlike the last market cycle, technology is now at the core of your strategy to retain per- forming customers and care for nonperforming customers, all while maintaining compliance and profitability. A modern, consumer-first servicing tech stack must have three things: 1. Servicing System of Record: Must handle collections, accounting, escrows, investor management, and customer care. 2. Default Management System: Must han- dle loss mitigation, foreclosure, bankruptcy, claims, REO, and litigation. 3. Customer Care and Retention System: Must provide a bank-on-your-phone experience to manage loan(s), monitor home equity, get real-time loan offers, and get immediate hardship help. e era of consumer-first servicing mod- ernization is finally here to meet these three prerequisites. Modern servicing now finally makes it possible to have a subservicing strategy that doesn't wreck your customer experience. e secret sauce is executing your servicing strategy with all three tech prerequisites above at once. Stitching it together leads to customer experi- ence, regulatory, and profitability challenges. Good luck as you lean into servicing in 2021. Stay tuned as I dive deeper into the servicing fin- tech playbook in the coming weeks and months. Dan Sogorka is the CEO and President of Sagent, a leading fintech company modernizing mortgage and consumer loan servicing. Sogorka has led digital transformation in housing for two decades. Previously, he served as CEO of digital mortgage point of sale provider Cloudvirga, President of EXOS Technologies, EVP of Servicelink (a $1B revenue subsidiary of Fidelity National Financial), and Division President at mortgage servicing and data provider Black Knight. SPONSORED CONTENT By: Dan Sogorka

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