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48 MANAGING AND MAINTAINING A SUBSERVICER RELATIONSHIP "No matter how detailed your vetting process is, there's always a learning curve," Atkins said. "[When you enter a new subservicing relation- ship], there's always a point of not knowing what you didn't know." is, Atkins cautioned, is one of the reasons that a culture fit between the partner- ing organizations is essential. "Our past partner was failing on customer deliv- ery," Atkins added, noting that this can damage both a company's image and its internal morale. "We expect the white-glove touch," Atkins continued. "So when we made the switch, we made sure everything that was touching the customer had [that]." Sprague recommended that lenders looking to forge a subservicing partnership should demand to see a live demo of how the subservicer actually works—not just, for example, a Power- Point presentation. "I can make really pretty PowerPoint pre- sentations, but you want to make sure that the system is live and working," Sprague said. In addition to a live demo, Sabbe recom- mended communicating with not only the people who are servicing the loans but also the people who will integrate the system. ey are equally essential in ensuring a smooth transfer between lender and subservicer. "If you can't get to that level, or your salesperson is unwilling to share that with you, those should be red flags," Sprague cautioned. He added that it's also important to have multiple contacts within the subservicing firm because the client manager may not always respond as quickly as needed. 'A SEISMIC SHIFT' Looking over the industry shifts that have unfolded in recent years, Sabbe spotlighted the increasing role of subserving across the mortgage landscape. "One out of every three loans in America is now being subserviced. If you take out the top 10 banks, which mostly do everything in-house, it's closer to one of every two loans being subserviced. at's a seismic shift, particularly in the last five years." As the challenges facing the servicing of loans continue to evolve and shift, Sabbe noted that subservicers must keep pace, particularly in the areas of customer service and technology. Tech tools such as mobile apps, welcome videos, and investor portals can provide self-service options that subservicing stakeholders expect. Sabbe said that providing bor- rowers and homeowners with self-servicing options enables subservicers to save on costs, and, therefore, offer better pricing—a metric that could make all the difference when it comes time for lenders to choose between subservicers. Sprague agreed: "Servicing has such a high fixed cost to it due to specialization, particularly when you start dealing with multiple investors (e.g., Ginnie Mae versus Fannie or Freddie). It's a whole different skillset that you potentially need." However, Sprague noted that "the risks of being wrong now are far different than they used to be." e inherent risks involved may be a primary driving factor for some lenders to seek out a subservicer. Sabbe noted that PHH Mortgage has approximately 300 team members working in Risk and Compliance, the cost of which contin- ues to increase. "Taking undue risks at this time is just ill-ad- vised," Sprague said, "and servicing is one of those things, particularly when you've got Ginnie Mae [loans] or you're dealing with natural disasters." Whereas previously lenders would look at pricing alone, which was difficult due to compli- cated fee structures, now lenders look at total cost savings or revenue generation they can achieve by switching from in-house servicing or from one subservicer to another, Sabbe noted. Sprague admitted that the pricing structure can be complex depending on a lender's needs. He compared it to a restaurant menu. One lender might want one thing on the menu, another will order sides (additional services), so the pricing will be different. ere are many potential things to order. One topic the panel delved into was what pitfalls might be involved when transferring loans. Some of the issues cited include potential customer impact, avoiding confusion around the timing of transfers—whether a scheduled balance transfer or a bulk transfer—as well as how RES- PA requirements are managed. Communications and scheduling are crucial, Atkins said. "Nothing is going to ever go perfect in a switch or a transfer. Have a mitigation, and you'll be okay." Sprague cautioned that there might be some confusion due to changes in escrow balances when a transfer first occurs. He suggested that adding language such as, "Your escrow balances won't be available until X date" into customer letters could help calm borrowers' nerves and decrease the risk of worried phone calls. A per- sonalized welcome letter or an intro video from the subservicer could also help stem some of the confusion, Sabbe added. "No matter how detailed your vetting process is, there's always a learning curve [When you enter a new subservicing relationship], there's always a point of not knowing what you didn't know." —Donny Atkins, Jr., Director of Servicing, The Money Store Cover Story By: Phil Britt