Making the Case for In-House Servicing

To service mortgages in-house or to outsource servicing? For credit unions originating mortgage loans, that is the million-dollar question.

Some credit unions choose to outsource the servicing, perhaps believing they lack the resources to effectively service their loans in-house. This decision may be a missed opportunity.

What Resources Do You Need for In-House Servicing?

First, credit unions ideally need loan servicing software that integrates with their other in-house technologies, specifically the core system and LOS, to recognize the most success. A consumer-facing web portal where borrowers can make payments and access real-time loan information and statements is a necessity. Mortgage single sign-on capability from within the credit union’s home banking system provides transparency between systems adding to the convenience and instant access that today’s members expect. And key to a successful operation, they must have staff experienced in using technology to maximize the servicing software functionality and optimize servicing operations.

In the long run, retaining servicing in-house presents more benefits than costs for credit unions. When done correctly, servicing in-house can bring increased profits, additional cross-selling opportunities, and an all-around more positive member experience that will keep members loyal to your organization.

Here’s the case for servicing retained.

Increased Profits

Credit unions are always looking to expand and elevate the services offered to their members. Originators selling their loans servicing-released are missing out on a potentially large profit center for the credit union.

In-house servicing can be lucrative. With the ideal technology—a robust servicing platform integrated with the core system, origination software, borrower web application and other necessary tools—credit unions can easily achieve, on average, around 1,000 loans serviced per employee per month, with more efficient shops even achieving significantly more. Considering that the average U.S. mortgage loan is about $172,000 and the standard service fee is 25 basis points, that’s around $430,000 in service fee income per employee per year.

When you crunch the numbers, it’s easy to see how servicing can provide a huge source of income for credit unions. Furthermore, if the credit union is selling the loan on the secondary market, whether to Fannie Mae, Freddie Mac or another investor, retaining the servicing allows the credit union to originate more loans while also reaping the benefits of a longer-lasting relationship with the member, further increasing income.

Cross-Selling Opportunities

On that note, servicing in-house can potentially offer many opportunities for the credit union to generate additional revenue. When credit unions sell their loans to be serviced by a secondary party, they may be missing out on valuable cross-selling opportunities.

Mortgage loans are considered long-term, “sticky” products, meaning they provide regular points of contact with the member over an extended period of time. Paying off a mortgage loan is a long-term commitment for the borrower that requires monthly payments, which act as a built-in point of engagement each month. Even if that’s simply logging into the servicer’s web application or receiving a receipt of payment, borrowers are consistently reminded of their relationship with the credit union and the valuable services the institution is providing.

This consistent engagement helps credit unions build more invested relationships with their members, making it more likely that those members will stick with them for future financial needs, which results in further cross-selling opportunities. For example, members may seek out other types of loans, credit cards, or checking accounts, potentially generating even more revenue for the institution. The credit union is also more likely to be the lender of choice if the borrower decides to refinance the loan.

In contrast, if the servicer sells the loan on a servicing-released basis or outsources the servicing, they’re missing out on a relatively easy opportunity to develop long-term working relationships with members. Members have already chosen their credit union to address their need for a loan, so servicing naturally expands the scope of the relationship.

Better Member Experience

Perhaps the biggest benefit of all is that in-house servicing creates a better member experience--in multiple ways.

First, as mentioned above, servicing in-house leads to longer-term relationships that often result in more engaged members. Not only are members likely interacting more with credit union staff, but they’re also receiving consistent reminders of the value that the institution is providing through their services.

Second, and perhaps even more importantly, servicing in-house gives the credit union greater control over the member’s experience. If servicing is outsourced, how it’s conducted is virtually out of the credit union’s hands, and thus, there’s no way to ensure that the member has a positive experience. Credit unions are known for their excellent service, and many members choose the credit union as their financial partner for that very reason. With other servicing companies, members will be just one of many other customers and less likely to receive the level of personalized service that their credit union would provide.

This can be detrimental to the relationship, as the transfer of servicing rights often takes place behind the scenes and members might not even realize that their credit union isn’t providing their servicing. Therefore, if the borrower has a negative experience, he or she is more likely to turn elsewhere for future financial needs regardless of whether that experience was within the credit union’s control. Consequently, a bad member experience could also lead to the loss of other financial products, resulting in checking or savings accounts, credit cards, consumer loans or other products that have already been established being moved to another financial institution.

Considering that many members opt to work with their credit union under the promise that the service provided will be friendlier and more personal than that of big banks or other companies, it’s of the utmost importance to provide a convenient, seamless and all-around positive experience. In-house servicing is the best way for credit unions to deliver exceptional customer service. 

So, to service in-house or to outsource? The decision ultimately lies with each credit union, but in-house servicing can be hugely beneficial in terms of profit and, more importantly, member experience. With that in mind, the answer seems to be abundantly clear.

Susan Graham is President and COO of FICS^® (Financial Industry Computer Systems, Inc.), a leading mortgage software company specializing in flexible, cost-effective, in-house mortgage loan origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, housing agencies, banks and credit unions. FICS’ software solutions provide customers the flexibility to choose an in-house or cloud hosting solution. The company also provides innovative document management, API, and web-based capabilities in its full suite of products. Visit www.fics.com for more information about our exceptional mortgage software solutions.

Published in Credit Union Times Magazine, September 2017