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» BOWING TO NUMEROUS INTERESTS "We're all audited," said Caroline Reaves, CEO of Mortgage Contracting Services (MCS), which itself was recently part of a consolidation effort. In August, Concentric Equity Partners and TDR Capital announced the formation of a new holding company to establish a suite of mortgage field services companies comprising MCS and two of its former competitors, Asset Management Specialists (AMS) and Vacant Property Specialists (VPS). According to Reaves, there are a number of factors that come into play when considering combining forces with another company. In addition to the other party's reputation, their management team, and the location of their facilities, chief among the questions to ask is: "Do they have something that will benefit our business?" she said. Although the pooling of MCS, AMS, and VPS under common ownership just made good ISN'T GOING TO WORK IN THE POST2014 ERA because of the cost to comply. BLACKBOOK THIRD-PARTY IMPACT The pre2007 costof-service model just industry when vendors consolidate because it tends to align the ratio of suppliers to demand now that the economy is improving and the number of loans in default is declining. These consolidations could essentially represent a reset or a balancing of supply and demand, he explains. However, Mobraten said, "From a supplier's viewpoint like mine, when there's a consolidation of mortgage servicers, there becomes less opportunity. We wind up with a large pool of suppliers and a small customer base." "This business has always been about building relationships and understanding the specific pains that your customer base goes through, and you investing time and dollars into solutions for these particular customers," Mobraten said. "With an immediate acquisition of some kind, now you're at risk of that customer and all that time and investment going away in a matter of seconds." Mobraten said the interesting part to him is that although "every acquisition represents somebody having to sell to survive, it also represents an opportunity for someone else." One thing those in the industry can count on, according to Mobraten, is constant change, and it's important to strategize for that change to endure and remain successful. MARKET PULSE With Basel III, eminent domain, lawsuits from municipalities, FHA penalties, and hungry attorneys general looking for ways to raise public opinion among their constituents, there's a multitude of various interests trying to "intervene in the mortgage lending space without concern as to what it will do, at least in the short- and intermediate-term, to the profitability of this business," according to Glasgow. If those banks and nonbanks are left in doubt as to what the future holds in this business, he says, it only generates more concern and interest in exiting the mortgage business. "We as an industry have to get to a point where the intervention by all these various interests is minimized," Glasgow said. "For example, everyone wants to examine and audit the same company. We have to get to the point where one firm can produce something equivalent to an SAS 70, something that says, 'I'm in good health and I'm performing in compliance with CFPB requirements.'" According to Glasgow, there's too much interruption on the part of these various examiners. They are detracting from both banks' and nonbanks' ability to service the consumer. And he says the same is true for vendors; they're encountering the same interference. business sense, Reaves says compliance is a very big part of all consolidation taking place within the industry today. "Just the sheer volume of new regulations that have come out and the expense of that" is a strong driver, Reaves said. MCS alone has invested $25 million in its technology since 2007, and Reaves says a lot of that has been recently to ensure compliance with new regulations. "If we're sharing technology and not having to replicate those efforts, we get the best out of all our technologies and can make sure we're able to handle all the security, data transfer, data backup, and disaster recovery requirements" that are necessary for this business, she explained. "I think we will absolutely see more consolidation just because of the sheer expense of remaining compliant with all of the new regulations, along with the benefits related to technology and quality control," Reaves said. "Consolidation can be very good. When companies are consolidating to gain the strengths of other companies, it helps our industry and helps our clients." Todd Mobraten, COO of RES.NET, agrees that it can be a good thing for the COVER STORY happens when a single company tries to become the behemoth, large mortgage company with the largest market share. "There have been more failures than successes, and this is something that we at least have to be careful and mindful of," Glasgow said. VISIT US ONLINE @ DSNEWS.COM OVER-REGULATION? Over the last three to four years, regulatory supervision has reached a level that Glasgow can only describe as "ridiculous." It's a major distraction and interference with any company performing as it should and working to exceed customer expectations. "You can't take managers off the line and have them entertain and educate examiners— which is what we've been doing—and at the same time expect them to manage your customer base," Glasgow said. "It doesn't work." The burden today is being placed on those lenders and servicers that have had the stamina to withstand this "intervention," Glasgow says, but it's not something that can continue without companies concluding the risks of this business outweigh the rewards. "In the next 12 to 24 months, if the extraordinary intervention that has happened in our industry over the last few years doesn't subside, then this is a business that's not sustainable based on the servicing fee revenues—it's just simply not sustainable," according to Glasgow. "Then you have to ask yourself, 'Who is going to eventually pay for it? Who is going to have to pay to support today's broad-based definition of how this business should be conducted?'" 47

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