The Digital Future of Mortgage Servicing

Mortgage servicing has a consumer reputation few would envy. According to the Consumer Financial Protection Bureau (CFPB), more than 80% of mortgage-related complaints involve problems with mortgage servicers. Additionally, nearly 80% of borrowers opt for a different servicer when they refinance their loans or move.

Consumer lock-in is the widely acknowledged reason for this state of affairs. Even when they refinance – the primary way to part company with a servicer – consumers typically have no choice in which institution services their loan and can even end up with the same servicer as before if the loan is sold. Mortgage servicers also have a unique business model whereby their topline is fixed – usually 25 to 33 basis points of loan balance – so it’s a game of margins and efficient scale and scope.

Because of these dynamics, mortgage servicers have little incentive to innovate. Old-school features like static websites and paper-based notifications continue to define the typical customer experience. The result is an industry increasingly out of sync with customer expectations in a rapidly digitizing economy.    

An Unsustainable Customer Experience

A poor customer experience can be costlier than it may seem. Start with mortgage servicing costs, which include customer-facing and loan administration expenses such as call centers and communications. Last year, the average fully loaded mortgage servicing cost reached $234 for a single-family loan. With the current setup of technology and processes, standard mortgage services require a high touch, take days or even weeks to execute and are far too costly.

Beyond that, opportunity costs arise from the industry’s low customer retention rate – a customer typically stays with a mortgage servicer for about seven years before moving on. This represents a lost opportunity when customers refinance or make a new purchase.

Strategic investments in customer experience can pay off, however, even for the most cost-conscious mortgage servicer. One servicer we worked with shaved off 15% in servicing expenses when it enhanced the customer experience by leveraging automation, new website and mobile features, and a 360-degree customer view to provide self-service, proactive interventions and superior experiences.

Opportunities across the Value Chain

So where should mortgage servicers seek improvement opportunities? All across the mortgage servicing value chain. Areas to zero in on include:

• New customer orientation. Onboarding communications can be inaccurate or insufficient. Billing, escrow and fee information may be difficult to find or understand. Payment options and online banking can be limited. Innovative options include learning videos or walkthroughs supported by co-browsing and chat options.
• Billing and payments. Confusing layouts, hard-to-read fonts and arcane language tend to greet customers who try to examine their bills or make payments online. Often, changes such as adjustable-rate mortgage resets are difficult to find or understand. Important information can be missing or buried in detail.
• Fees and escrow maintenance. It may not be clear to customers why the servicer is asking for more money or sending a check. Fees might seem unreasonable, while escrow payments could be inaccurate or late. Customer inquiries or complaints might yield weeks of silence.
• Interactions. Customers may struggle with multiple points of contact, discourteous behavior and unfamiliar accents. Customer assistance can have limited availability, and issues may require many attempts to resolve.

A Holistic Look at Mortgage Digitization

Going digital is an effective way to remove friction from the customer experience. If customers could readily find what they need online – aided by artificial intelligence-driven capabilities that remember previous customer questions and adapt the answers accordingly – call centers would see an equivalent reduction in open tickets. A well-designed mobile app could reduce call volume even further by enabling customers to serve themselves, carry out transactions and get help from a chatbot.

When seeking a digital solution, mortgage servicers should look for features that aid the customer journey, such as simplified navigation, voice and text search, and adaptive intelligence. Another consideration is exception handling. The system should tag and track customer inquiries and complaints, and guide customer decision-making in line with regulations.

Other innovative mortgage servicing experiences include property updates, a full view of property information, pre-payment simulations, mortgage insurance cancellation simulations, and integrated property search for move-up and move-out customers.

Challenges to Overcome

At the same time, mortgage digitization presents challenges to servicers. Most servicers rely on legacy platforms that really aren’t true servicing platforms but are mainframe-based accounting platforms without adequate workflow capabilities or cost-effective ways to build customer engagement layers, such as application programming interfaces. A recently announced app by Black Knight, a top mortgage servicing platform provider, is a giant step forward, but large lenders still need to figure out how its features will merge and integrate with their current website and native apps to provide a seamless and unified experience.

Budget constraints raise another challenge. For mortgage servicers, revenue is more or less fixed, leaving fewer dollars for customer experience investments. Banks usually have larger budgets due to deeper pockets and multiple product and service offerings compared with pure-play mortgage banks.

Finally, there’s the entrenched mindset of the mortgage servicing industry, which can be resistant to change from a people, process and technology standpoint. This can make it more difficult to innovate compared with new digital-native market entrants whose infrastructure is digital from the start.

Mortgage servicers that embrace innovative approaches and mindsets will outrun the competition in the digital future. For these early adopters, it’s crucial to assess the best opportunities to introduce new capabilities, develop a realistic adoption roadmap and design a customer experience that will earn them a reputation for providing a streamlined, transparent and consumer-friendly approach never before seen in the mortgage servicing industry.

To learn more about the mortgage industry’s digital future, discuss this article or ask a question, visit us at the Mortgage Banker Association (MBA) Annual Convention & Expo, October 14-17, 2018, in Washington, D.C. We look forward to seeing you soon.