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In-House Servicing: A Valuable Opportunity for Most Credit Unions

In-House Servicing: A Valuable Opportunity for Most Credit Unions

When evaluating whether to retain or outsource servicing, some credit unions may assume they lack the resources to effectively manage the process in-house. By investing in the right technology, even smaller credit unions can retain servicing, opening doors to new opportunities to benefit themselves and their valued members. 

So, what tools do today’s credit unions need for in-house servicing?

Credit unions need loan servicing software that is integrated with their other in-house software–most importantly the core system and loan origination system (LOS)—to provide seamless dataflow. Consumer-facing web portals that allow borrowers to make online mortgage payments and access real time loan information and statements are essential to meet the expectations of consumers in this digital age. Offering mortgage single sign-on capability from within the credit union’s home banking system allows transparency between systems, increasing convenience and instant access today’s consumers expect. To ensure success, the staff needs to be well-versed in their mortgage servicing software, which in turn will allow them to achieve optimal automation of the servicing operations for the credit union.

Maintaining servicing in-house provides several benefits to credit unions and their members: greater profits, additional cross-selling opportunities and a more positive member experience.

Greater Profits

In-house servicing can be a profit center for servicers selling loans into the secondary market (i.e., Fannie Mae, Freddie Mac and Ginnie Mae). With the right staff and mortgage servicing software, credit unions can service 1,000 or more loans per employee per month. If you take the average national mortgage loan, $201,000, and multiply it by the standard service fee of 25 basis points, that’s on average an additional $502,500 per employee per year generated by service fee income alone. Ancillary income, such as late fees, adds to the potential income. When costs are controlled with the right servicing software, maintaining servicing in-house can be a lucrative business.

Cross-Selling Is Key

Credit unions strive to offer their members more products and services to improve the member experience and generate more revenue. In-house servicing presents credit unions with opportunities to improve their bottom line.

In-house servicing can lead to more sales opportunities via more personal customer relationships. Credit unions may have multiple touch-points with borrowers who have multiple accounts (e.g., car or personal loans, checking or savings accounts or credit cards). A mortgage loan is considered a long-term sticky product, meaning that borrowers will have frequent interaction with their mortgage servicing company for an extended period. This long-term relationship presents a key opportunity to cross-sell other products.

On the other hand, if a credit union sells the loan and transfers the servicing to a different institution, the credit union may lose that borrower for future business. When it comes time to refinance, the borrower is likely to refinance with the lender currently servicing their mortgage. And if the servicing is outsourced and the borrower experiences problems, the loan originator is out of the picture and the borrower is more likely to turn elsewhere for future financing needs.

Enhancing the Member Experience

In addition to increasing the credit union’s bottom line through service fee income and cross-selling opportunities, in-house servicing also enhances the member experience in several ways. In-house servicing provides an additional service offering to customers who already have investments or other types of loans with the institution. Furthermore, in-house servicing leads to longer-term relationships that often result in more engaged members. Most borrowers make monthly mortgage payments for many years, so there’s a natural engagement point each month. When members interact with credit union staff, or even just log on to the web portal to make their monthly payments online, they’re reminded of the value the institution is providing through their services.

Millennials, who have been the largest share of home buyers for the past several years (36 percent in 2017), prefer digital access to their financial information, so mortgage servicers should take advantage of digital channels. Sixty-five percent of millennial home buyers are first-time buyers who may benefit from education about your credit union’s financial products or mortgage-related topics in general to help them succeed at home ownership.  Keep this younger generation engaged by providing convenient access to their mortgage information and promoting other products that would benefit them.   

When servicing is done in-house, the credit union can provide the exceptional customer service that borrowers expect—whether it’s delivered face-to-face, by phone or digitally. When servicing is out-sourced, the credit union has no control over the quality of the customer service provided by the third party, and in most cases, you have eliminated the option of a face-to-face interaction because there are no brick and mortar locations nearby. Other servicing companies may treat the borrower as just one of many “accounts” instead of providing personalized service. Because many consumers choose their credit union based on the service capabilities and positive experience associated with them, credit unions must provide a seamless and convenient member experience. By maintaining servicing in-house, credit unions can deliver this exceptional customer service.

Outsourcing servicing can backfire. Members who are unaware that their account is being serviced by an external company may mistakenly attribute negative customer service experiences to the credit union. A dissatisfied customer may then close other accounts held by the credit union, such as savings or checking accounts, other consumer loans or credit cards.

Ultimately, the credit union’s management must decide whether to service in-house or outsource to a third party. With the right mortgage servicing software, in-house servicing can be a lucrative source of revenue while allowing the credit union staff to provide the best possible borrower experience.

Susan Graham is president and chief operating officer of Financial Industry Computer Systems (FICS), a mortgage software company specializing in cost-effective, in-house mortgage origination and servicing.


Published in CUNA, August 2018 

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