Like on the origination side, expert warns servicers should be ready for increased regulatory scrutiny of new tech
Last week's announcement of Two Harbors Investment Corp.'s acceptance of CrossCountry Mortgage's acquisition offer is just the latest in a growing trend across the industry.
The consolidation playing out on the servicing side of the mortgage industry is likely not finished. It’s part of a growing trend of seeing larger players get larger, smaller companies competing at a local level, and a middle ground growing increasingly empty.
However, one analyst sees hope for smaller servicers in the wake of this acquisition rush, as larger players absorbing big servicing portfolios are not going to chase every deal. That leaves room for smaller shops to acquire MSR and portfolio opportunities that were not available to them before, if they are operationally ready to take them.
Mirza Hodzic (pictured top), managing director and founder of BlackWolf, a mortgage servicing consulting firm, believes more mergers and acquisitions could be on the horizon. But those transactions that have reshaped the top of the market are creating a gap in the middle, and for smaller servicers willing to invest in the right technology, that gap is an opportunity.
"I believe there's more coming, just from personal experience," Hodzic told Mortgage Professional America. "But it also provides an opportunity for smaller places to kind of jump into that middle market. Now you're going to have big places that have the big servicing portfolios. But then it provides additional opportunities for smaller shops to kind of take that next step as well."
How tech can close the gap
The larger shops consolidating their way to scale are not chasing every portfolio, Hodzic said. Smaller servicers will have opportunities that were not there before.
"This is a positive thing," he said. "The larger shops are not going to be interested in certain aspects of servicing. So the smaller shops will be able to acquire certain portfolios that weren't available to them before. And I just overall see more opportunity from having more experienced staff that was possibly affected by these acquisitions, and the rise in new tools."
The automation piece is moving faster than most expected, he said, and it is changing what servicers can offer borrowers, not just what they can cut from their cost structure.
"I definitely see a lot of automation happening more recently,” he said. “I think we're going to get to a point where servicers are taking efficiency to another level in the next couple months. It's not just a cost-saving piece, but it's also how can we be better as servicers and how can we serve our customers better."
Not every servicer is at the same stage of readiness, Hodzic said. When he works with clients, the conversation always starts with data quality and regulatory exposure before the technology itself.
"We want to be efficient, and we want to utilize the best technology. But you want to make sure that you take into account the regulatory impact of making decisions," he said. "You can have the best tool in the world. If your data is not clean, it's not going to work well."
Regulators watching AI closely
Regulators are not far behind the technology, Hodzic said, and most servicers are underestimating how quickly the scrutiny will arrive.
"We did see less scrutiny around the regulatory pieces over the past year or so,” he said. “However, I think we're going to see a big jump in reviews and federal and state and GSE kind of requirements around that piece. I always advocate for people to be ready when you're looking into those things, whether it's on the servicing side, lending, or anything. I think we're going to see people looking into what you're using as a tech stack in the next couple of years for sure."
The audit trail question is the one he hears most from clients who have started implementing automation, he said. When a regulator walks in, the first question is not what tool you used.
"When we're either working on developing a new platform, or we're evaluating existing platforms, that's one of the things that we look for,” Hodzic said. “Those questions will come up when a regulator comes in. Like, ‘Great, you use this automation tool, but where's your audit trail?’ For a tool to have it is non-negotiable at a certain point."
He doesn’t believe that jobs will be lost as technology increases, but it will change how processes are done.
"I don't think it will take away jobs,” Hodzic said. “I think it will make people more efficient, and it will kind of change the way we do our work, like we started using calculators back in the day. It'll be a regular thing. So it's not going to take away the job, but more of a shift in the way we do mortgages and servicing as well.”
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