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November 2023 » thefivestar.com 43 November 2023 F E A T U R E S T O R Y service, regulatory compliance, and risk management. If a servicer lacks sufficient personnel or their management team doesn't have the expertise to handle these functions effectively, the quality of service could suffer, potentially leading to reputational risk, regulatory penalties, and dissatisfied customers. Conversely, a servicer with robust staffing and strong management could handle these tasks efficiently, maintaining customer satisfaction and regulatory compliance. A subservicer can provide a viable alternative for servicers lacking in staffing or management resources, as they come equipped with a dedicated workforce and specialized knowledge at a price point that is significantly less than hiring full- time employees. However, outsourcing also means relinquishing some control over these critical functions, which may not suit all servicers. Hence, the decision depends on the servicer's human resourc- es capabilities, strategic priorities, and the importance of ensuring a quality custom- er service experience for the borrowers. 4. The Customer Experience M oving to a subservicer may help your company save valuable time and money, but if it is at the risk of delivering a subpar experience for your customers, you should take a moment to reassess your position. A superior customer experience, characterized by clear communication, responsive support, and seamless digital interactions, can drive customer satisfaction, loyalty, and referrals, thus directly influencing a servicer's success. In-house servicing may offer greater control over these aspects, allowing for customization of services based on unique customer needs and preferences. How- ever, if a servicer lacks the resources or expertise to provide excellent service, cus- tomer satisfaction may falter, impacting their business reputation and bottom line. Subservicers often have sophisticated customer support infrastructures and can offer a higher level of service. While outsourcing can reduce direct control over customer interactions, which may conflict with a lender's business models or customer strategies, the best sub- servicers in today's market understand the importance of a positive customer experience. Access to sophisticated com- munication outlets, such as chat features, 24/7 self-serve support, and Spanish translation, can elevate the experience for customers at a flat expense for the lender. Lastly, lenders will still have control over the ways the subservicer communicates with customers, creating a truly collabo- rative relationship. 5. Regulatory Compliance and Risk Mitigation M ortgage servicing is a highly regu- lated activity with complex legal requirements at both federal and state levels, and failure to comply can result in substantial penalties and reputational damage. Similarly, effective risk manage- ment is necessary to navigate potential fi- nancial and operational risks. If a servicer has the expertise and systems in place to handle these aspects, in-house servicing can offer better control. However, the risks may outweigh the benefits if they lack the necessary knowledge, infrastruc- ture, or staff resources. Subservicers, with their specialization and scale, often have robust compliance frameworks and risk mitigation strat- egies in place. Yet, outsourcing doesn't eliminate a servicer's regulatory obliga- tions or risks entirely, as they still bear ultimate responsibility for compliance and are exposed to potential operational risk from the subservicer. While this may deter lenders from choosing to partner with a subservicer, it goes without saying that if the onus remains with the lender to remain in compliance with state and federal regulations, it makes sense to mit- igate that risk by employing best practice tools available through the subservicer collaboration. Lenders will need to determine a break-even point for compliance-related expenses to identify when the benefit of outsourcing will outweigh the risk of oversight, keeping the above factors in mind. Another area to keep in mind is licensing—using a subservicer will allow lenders to typically service loans in all 50 states and U.S. territories without having to get the required licenses themselves. This can save lenders enormous time and expense while allowing them to grow without the setback of waiting to get licensing approval. At the end of the day, the expense related to compliance and risk manage- ment is well spent if it comes with the as- surance that they are leveraging the best knowledge of controls, best practices, and changes in the regulatory environment. A Case for Subservicing C hoosing to subservice their mort- gage loans can provide lenders with several strategic advantages over in-house servicing. Subservicers, as specialized en- tities, typically have established, scalable infrastructures with robust technology systems designed for efficient loan ad- ministration, regulatory compliance, risk management, and customer service. This specialization can free the lender from investing heavily in complex servicing operations, allowing them to focus their resources and expertise on their core lending business. Additionally, subservicers' proficiency in handling regulatory changes and mar- ket fluctuations can mitigate operational risks, while their ability to provide supe- rior customer support can help enhance borrower satisfaction. By leveraging the economies of scale, technical capabilities, and industry expertise of a subservicer, lenders can achieve cost savings, improve service quality, and enhance their overall competitive advantage.