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49 BEYOND THE PRICE CONSIDERATIONS Sprague again stressed the need for a good culture fit when choosing a subservicer, but added that it's also important to closely examine the cost structures involved. What subservicers offer in the base price may be different, and there may be more data or there may be more free reports. "e borrower is going to be there for a long time, so you want to make sure they have a good experience, Sprague said. "Whether it's prepaying or not prepaying, understanding that the subser- vicer is treating them as their own customer is critically important." Sprague also suggested that lenders must understand what the subservicer can provide as far as "breaks on deboarding fees or boarding fees." When things become difficult or could go wrong, you also want to make sure your subser- vicer has the right protocols and is always reactive to the market, Sprague added. Sabbe suggested that lenders shouldn't just ask for a price but should instead ask for a comparative price. He also recommended asking questions such as "How do you manage your foreclosure attorneys? What are your timelines for traditional or nontraditional things? How quickly do you sell your RAL? At what value do you sell your RAL?" Making sure you have a handle on this information will provide a better high-level comparison between subservicer options than pricing alone. "It has to be somebody that you can work with to help grow your business," Sabbe said. Sprague said that subservicers provide value because they are more used to dealing with delinquencies than you may be from servicing in-house, as the subservicer may have a larger, national portfolio. No one gets paid when a loan is delinquent, Sprague pointed out. "e more current that you keep your portfolio, the more cash you're going to get," Sprague said. HOW WILL FHFA/GINNIE MAE'S NON- BANK CAPITAL RULES IMPACT THE MSR MARKET? Sprague noted that FHFA had released revised capital rules before the COVID-19 pandemic, but said these rules had been criticized by some as being overly "punitive." In January 2020, FHFA pulled those rules. Now FHFA has better aligned the rules, with several important differences on the Ginnie Mae side. Sprague said that the rules involving tangible net worth and eligible liquidity were getting a lot of attention. "Entities with their Ginnie Mae servicing ticket are going to be under sort of new risk-based capital rules that are more bank-like," Sprague said. Servicers with more than $50 billion of servicing need to be rated, which Sprague noted would add further costs. "My personal opinion is that this could have some impact on the MSR values," Sprague added. However, if regulators perceive that these capital rules are going to create undue problems in the marketplace for liquidity of servicing, they will adjust appropriately, Sprague suggested. "Part of their stated mission is not to disrupt the market," said Sprague. THE BIG PICTURE Sabbe recommended that lenders challenge their subservicing and other partners, particularly when it comes to areas such as performance, cost, and responsiveness. "Be forward-thinking," Sprague advised. "We're going to have escrow analysis starting here. Property values are up. Understand the impact of your borrower, on what escrow shortages look like. Make sure you get in front of that as you're sort of managing your mortgage business. Understand- ing where you might have escrow shortages that you're going to need to float for 12 months. Work with your subservicer and understand when those escrow analyses are done." Sprague suggested keeping a close eye on production dating to April 2022 and beyond, pointing out that refinanced mortgages carry much higher interest rates now than they did a couple of years ago. "Be a steward for servicing," Atkins said. "Don't get skipped over on that executive agenda, because we can make a difference to what's going on in this industry." Phil Britt started covering mortgages and other financial services matters for a suburban Chicago newspaper in the mid-1980s before joining Savings Institutions magazine in 1992. When the publication moved its offices to Washington, D.C., in 1993, he started his own editorial services room and continued to cover mortgages, other financial services subjects, and technology for a variety of websites and publications. "I can make really pretty PowerPoint presentations, but you want to make sure that the system is live and working." —Seth Sprague, Director of Consulting Services, Richey May