Buyer Beware: Not All Mortgage Service Providers Are Created Equal

It’s no secret that credit unions’ share of mortgage originations is surging and, in fact, hitting all-time highs

by Keith Varney, President, TruHome Solutions

It’s no secret that credit unions’ share of mortgage originations is surging and, in fact, hitting all-time highs—to the tune of $100 billion in 2012 (http://ow.ly/jp3Vy). The record-setting credit union mortgage business can likely be attributed to the explosion in home refinancing of late, coupled with the record growth in credit union membership stemming from 2011’s Bank Transfer Day.

With mortgage portfolios becoming such enormous, profitable assets, the time has never been better to justify investing the funds necessary to ensure state-of-the-art servicing and ultimately, consistent long-term performance. And with an increase in both the need for greater servicing capabilities and members’ service expectations, many lenders are resolving to outsource their servicing needs.

That said, it’s not surprising that service providers seem to be emerging from the woodwork lately. Credit unions seeking to outsource loan servicing have no shortage of options, which is both good and bad—good in that the sheer number of providers keeps billable rates competitive. Bad in that it becomes very easy for a credit union to mistakenly partner with a subpar sub-servicer.

So here’s my “Buyer Beware” disclaimer: Not all service providers are created equal! In other words, while there are many providers out there claiming they can “do it all,” it’s the credit union’s job to do the legwork and ensure the provider in question truly offers comprehensive service options and benefits. Otherwise, they shortchange their credit union’s offer—and what they can provide to their members.

Seven things to look for in a service provider

• Check to make sure the service provider is actually approved by the major government-controlled entities—Freddie Mac, Fannie Mae, Ginnie Mae, FLHB, etc.
• Research the provider to confirm it will handle any size of servicing transfer. Some providers set limits that can complicate your credit union’s servicing transfer. But others, like mortgage CUSO TruHome Solutions for example, will transfer any size bulk of loans.
• As a general rule of thumb, it’s always better to go with a provider that offers a simplistic pricing model. The more complicated the model, the more potential for sneaky fees.
• Seek a provider that also guarantees servicing compliance to get the most bang for your buck. For example, at TruHome, we eliminate our clients’ operational risk and the need to stay abreast of Consumer Financial Protection Bureau (CFPB) servicing requirements because we make it our job to keep up with the ever-changing regulatory environment.
• Analyze different service providers and keep this in mind: flexibility is key. You should desire a provider that makes loan servicing easy, whether your credit union wants to keep the loans on your books or sell them on the secondary market and retain the servicing rights. Which leads me to my next point…
• Seek a provider that passes back mortgage servicing rights (MSRs) to your credit union so that you always retain the value (not the other way around). This includes passing back income to credit union clients for the life of each loan.
• Choose a provider that offers private label servicing, even if your credit union doesn’t need that particular service right then. Several mortgage credit union servicing organizations (CUSOs) like TruHome offer a customizable private label partnership because, while they want to fulfill a CU’s needs, they also understand the importance of branding and the member/credit union relationship.  It’s very possible that as your mortgage department expands, this could become even more important to you down the line, so give yourself the option up front.

CUSOs and credit unions—a perfect subservicing match
And finally, if at all possible, make it a point to do business with a provider that is credit union-owned, as there are numerous benefits that come with this distinction. Perhaps the most important is the fact that a credit union-owned provider understands the credit union charter and cares about the individual member—which translates into the same unparalleled service standards one can only find at a credit union. After all, you want your members to be treated just as well when refinancing their mortgage as they are when walking into one of your branches, right?

So if your credit union offers mortgage loans to members but doesn’t have the manpower or budget to service them in-house, by all means, proceed to outsource! Just be sure to ask questions and do the research necessary to find a reputable, comprehensive servicing solution.