What's the Deal with Default Servicing?
(Denis Brosnan is president and CEO of Dallas-based DIMONT, provider of specialty insurance and loan administration services for the residential and commercial financial industries in the United States. Additional information is available at www.dimont.com.)
The default servicing industry seems to always be in a state of constant change.
For the past five years, servicers have had to deal with an unprecedented volume of default-related responsibilities. This was typically accompanied by rapid company growth, intensified regulatory scrutiny and a decrease in quality of service. Of course, the default volume did not last, and today, servicers are faced with the issue of trying to manage and grow their companies on very little incoming business.
These drastic ups and downs are enough to run any servicing organization or vendor partner into the ground, and for some, they have. Fortunately, by looking to the issues of the past, facing the issues of the present and accurately assessing the emerging trends, servicers can learn how to work with their providers to effectively scale up, and back down, as needed without disrupting their businesses.
As mentioned, the past five years displayed an industry boom in default servicing. All at once, everyone was determined to scale their business up like never before. However, amidst increasing demand and accelerated growth, servicers had to deal with heightened regulatory scrutiny. One way to deal with increased volume, as well as pressure from regulators, is to outsource to specialized third party vendor partners.
An established specialty insurance claims adjustment partner is extremely well-versed in the compliance laws surrounding the industry. It is their job to keep tabs on changing regulations as they happen, and to prepare accordingly. Similarly, they have the resources, experience and knowledge to anticipate compliance problems before they arise, as well as to proactively prepare for an audit. This allows servicers to save time and money, and return their focus to growing their business.
In addition, using a specialty insurance partner eliminates the need to hire and adequately train supplementary internal staff. In the United States, 45 states require that licensed adjustors be used for processing hazard insurance claims. Licensed adjustors undergo extensive testing and certification processes in order to facilitate the complex nature of adjusting these claims. Working with a specialty insurance partner that already employs and trains licensed adjusters will be much more beneficial to a servicer in the long run, especially when it is, inevitably, time to scale the business back down.
Today, scaling down is exactly what is required. Even if servicers survived during the industry boom by maintaining great service and remaining in compliance, many were unable reduce the number of employees and resources they had acquired in order to match the lack of current business. And servicers were not the only industry professionals struggling; many vendor partners were left broken, leaving the servicers they once worked with to frantically pick up the pieces and try to figure out how to manage the business on their own.
For now, it appears that default volume is not resurging any time soon, so there is continued pressure on both servicers and providers to do more with less internally, while remaining within the framework of intensified regulatory scrutiny. In order for providers to continue to assist servicers in running and growing their business today, they must be focused on the key concept of innovation.
Specialty insurance providers must be innovative with their offerings, including capitalizing on cutting-edge technology to enable them to work with servicers more effectively. Servicers should ensure that their partners are utilizing technology that offers a collaborative workspace for customers, investors, vendors and servicers to communicate. This workspace allows approved parties to view and revise claims procedures and reporting without resorting to lengthy and expensive information technology development cycles. Servicers will save time and money not only for themselves, but for their clients as well.
So what does that mean for the future? Five years from now, we will be seeing the effects of consolidation and diversification among specialty insurance partners. Vendors will acquire other vendors in order to expand their capabilities and have more to offer to servicers, which means that there will be fewer providers in the industry. However, these surviving vendor partners will have much more to offer to servicing clients than they did originally, eliminating the need for servicers to seek multiple providers.
Specialty insurance partners must begin now by employing licensed adjusters who are adequately trained on all compliance rules and regulations, as well as utilizing technology with a collaborative workspace in which all parties can communicate effectively. If these steps are followed, servicers will have healthy vendor partners to assist in scaling up, and down, as often as the dynamic default servicing industry calls for it.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at email@example.com.)