Credit unions all hold one maxim in common: "The member relationship is the most important aspect of our business."
Yet, many credit unions are all too willing to throw away a hard-earned relationship by either outsourcing servicing or selling their servicing rights which could result in the credit union losing the golden opportunity to cross-sell additional financial products or the customer altogether.
Many credit unions do this every year when they close a mortgage and release servicing to other institutions. The benefits of retaining servicing are well established, but too many credit unions let the fear of extra work or costs dissuade them from taking on a very profitable activity that improves long-term member relationships.
Retain Servicing to Enhance Member Stickiness
People choose to do business with a credit union for many reasons. While most people say rates are the number one factor in selecting a mortgage provider, most consumers also want to work with an organization they trust and that will provide them with high quality service.
Credit unions excel at building relationships with their members, but all too often, releasing servicing to another organization can damage those relationships.
"Member complaints were one of the primary reasons we decided to bring servicing in-house," said Angela Bassett, real estate manager for Alexandria, VA.-based NAPUS Federal Credit Union. "We were receiving multiple complaints each day from our members regarding the lower levels of service they experienced in seeking information or handling their mortgage loans."
"Our members receive better service when we handle the servicing of their mortgages..."
- Jason Ambrose, Mortgage Loan Officer at COMSTAR FCU
"When it comes to member relationships, the benefit of servicing mortgages in-house is the ability to provide borrowers with the quality of service that the member expects from a credit union. It is especially important that credit unions maintain a high level of member satisfaction, since mortgage loans typically provide income and a long-term borrower relationship for many years to come.
"Being a credit union, we pride ourselves on delivering excellent service to our members," Alan Fuller, manager of Mortgage Servicing for Olympia, Wash.-based Washington State Employees Credit Union. "We utilize FICS' Mortgage Servicer and eStatus programs in order to give our borrowers instant access to their loan information online and in our branch.
Retaining servicing also enhances other financial services channels. Mortgage borrowers may also need auto loans, student loans or savings accounts, and their experience with the servicing department - positive and negative - will affect these other lines of business. The ability of credit unions to cross-sell other products to members increases when they retain the servicing rights for the mortgage.
"Our members receive better service when we handle the servicing of their mortgages," said Jason Ambrose, mortgage loan officer for Fredrick, MD.-based COMSTAR Federal Credit Union. "Mortgage Servicer is very user-friendly and gives us the tools we need to not only meet our members' expectations but also to reduce the costs and time spent processing payments, handling escrow accounts and reporting to regulatory agencies."
Retain Servicing to Increase Income
Another benefit to retaining servicing is the increased income from servicing loans the credit union sells on the secondary market. As with any function, there are some nominal costs. These typically include servicing staff, operating costs for the printing and mailing of all borrower notices, and a software system to process payments, track and disburse escrow payments, provide investor reporting, and manage the portfolio.
"Servicing our members' loans while taking advantage of the secondary market allows us to provide the personalized service credit union members are accustomed to," said Sue Wagner, vice president of Lima, Ohio-based Superior Federal Credit Union. "By selling loans and retaining servicing, we also generate fee income and gain the advantage of removing interest rate risk from our balance sheet."
For most credit unions, even the income generated on a portfolio of 200 loans can easily justify the expense of technology and personnel. With an in-house servicing department, growth is simplified because the largest expenses - salary and a technology platform - are fixed. Except for the incremental increase of operating costs, the major expenses will remain static.
"Our mortgage servicing rights are considered to be one of the most valuable of our corporate assets, and our servicing income is one of our most successful revenue-generating lines of business," Fuller said. "Our own warehouse loans, of course, allow us to capture all interest income from those monthly payments; additionally, the bulk of our portfolio is serviced for the GSE's and other investors, which assures us income both from service fees derived from monthly payments as well as cash incentives for participation in certain loss mitigation programs."
Automating Responsibilities of Servicing
Credit Unions need two things to ensure a profitable servicing operation: qualified personnel and technology.
On the technology side, having a system to automate as much of the data importing, investor reporting and back-office operations as possible is the key to maximizing profitability. The most important piece of technology is the servicing system. Top systems, such as FICS' Mortgage Servicer, integrate with the loan origination software to eliminate the need to manually input borrower information into the servicing system. Additionally, systems like Mortgage Servicer can handle all of the back-office operations, such as payment processing, escrow administration, investor reporting, delinquency management and accounting.
Servicing platforms must also be flexible enough to handle today's compliance requirements and modification programs. Mortgage Servicer, for example, can handle nontraditional payment options, modifications and delinquency collections.
Top servicing platforms, such as Mortgage Servicer also interface with the GSE systems as well as most other financial institution core systems to share data from the mortgage department to other areas of the credit union. This allows transparency between the member and the member service representative.
"Our mortgage servicing rights are considered to be one of the most valuable of our corporate assets..."
- Alan Puller, Manager Mortgage Servicing for WSECU
We utilize a number of FICS programs in order to increase the efficiencies of our own work processes, and to make our services more convenient for our borrowers," Fuller said. "It has been very easy for us to interface with the GSE's by using utilities which already exist within Mortgage Servicer, and have created our own customer interfaces to integrate with our loan origination system and deposit account platform."
A strong servicing platform means that the credit union can minimize the need for servicing staff. While qualified staff will be needed, credit unions can maximize their resources and control costs by automating as much of the process as possible.
"Washington State Employees Credit Union services more than 10,200 loans for nine different investors, and FICS' Mortgage Servicer helps us manage this portfolio with only 10 staff in the department," Fuller said. "With the software handling the heavy lifting of updating account records and generating data for reports, our staff can focus on the needs of our members and investors."
It may seem crazy to imagine mortgages being profitable in this day and age. But with credit unions showing they made smarter lending decisions during the past decade, retaining servicing can be just the change needed to boost income for the next decade.
Susan Graham is president of FICS.
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