Keeping Your Loans at Home: Servicing Retention Provides Income Until the Refinance Market Resurges

Rising property values and low interest rates pushed mortgage loan origination volume to roughly $4 trillion in 2021, the highest level ever recorded. Since then, rising inflation and interest rates have curtailed loan applications — particularly refinances. The 30-year fixed mortgage rate topped 7% — the highest rate since 2002 — on November 10, 2022. “Higher mortgage rates have pushed refinance activity down more than 80 percent from last year,” said Joel Kan, the Mortgage Bankers Association’s AVP of Economic and Industry Forecasting.

The key may be servicing fees, income that helps credit union lenders offset revenue losses due to lower origination volume. Credit union mortgage lenders that sell off loans to the GSEs or other investors to free up liquidity may want to consider retaining servicing. By investing in the right mortgage servicing software, lenders can effectively service their loans in-house. The right software can help servicers comply with investor requirements and create value for their organization and its members.

BENEFITS OF IN-HOUSE SERVICING

Selling mortgage loans on the secondary market provides liquidity, freeing up funds for additional lending so lenders can originate more loans (focusing on purchases instead of refinances). Lenders that sell to the GSEs may choose to retain the servicing rights. Keeping servicing in-house benefits both credit unions and their members by generating servicing fee income, increasing cross-selling opportunities, and improving the member experience.

Consider the following:

Service fee income. Well-trained staff using robust mortgage servicing software can service 700 or more loans per employee. Doing some simple math, using the average loan size in early November ($389,400) and the standard service fee of 25 basis points for the year, each servicing employee can generate more than $680,000 in annual service fee income alone. Ancillary income, such as late fees and commissions on optional insurance, increases the profits.

Read the ACUMA Pipeline article.