Holding On to Mortgage Loans—and Relationships

CU360
June 5, 2009 | COMMENTS

The issuance, re-selling, and servicing of mortgages has become such an issue that some consumers are beginning to seek out financial institutions that will keep the servicing of the mortgages they originate and maintain direct relationships.

At Metavante, a company that offers mortgage and consumer loan origination systems, president Cy Brinn tells USBanker he's seeing an increased call for service-retained mortgage loans. "Consumers are interested in finding lenders that will actually hold their mortgages, so they don't have to worry about getting lost in the shuffle as servicing-released loans are traded multiple times," Brinn says.

Servicing creates a natural opportunity to sell products such as second mortgages, car loans, personal loans, credit cards, and deposit accounts, says one community banker. "The idea is controlling the first mortgage and being able to market and cross-sell other products to these customers, so long as you can keep them satisfied with the servicing," he tells the magazine.

A risk of selling off the servicing is creating an opening for competitors to wedge themselves between the originator and the consumer. "We want the customer to deal directly with us. If they have a problem with their payment or it didn't get applied correctly or they're going to be a few days late, they can contact us," says one executive.

Still, many financial executives feel that servicing is not right for their institution. The increased cost of technology and staff doesn't make sense, reports an executive at a $100 million-asset community bank. What this institution does, though, is broker every loan it makes through seven or eight investors in the secondary market. Those investors shop that loan around to find the best deal for the consumer. The executive believes his institution brings value through the loan origination process, not the servicing aspect.

While Brinn agrees that service retention might not be for everyone, those that can, should, he says. "The fee income from servicing is fairly minimal," he says. "You're paid 25 basis points of the mortgage on an annual term for servicing. So it takes some economy of scale to get up to a level where the servicing makes sense and you're not losing money. But again, for an institution that wants to retain that relationship, it's probably fairly cheap when you compare it to marketing."