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Feb. 3, 2003
The great majority
of loans today are serviced by firms that don�t own them. The servicer is paid
by, and is beholden to the owner of the mortgage.
Borrowers have no say in who services their loan, and if they get poor
service, about all they can do is write a letter of complaint to HUD.
It is hardly surprising, therefore, that servicing does not generally
meet the needs of borrowers.
But it doesn�t
have to be that way. Servicing systems can be designed to meet the needs of borrowers, who would pay for the
service. The borrower would be the
client rather than the lender, and could fire the servicer if he messed up.
A servicing system
for borrowers (SSB) would not replace existing servicing systems.
The firms providing the services described below could be called
�second-tier servicers.� Borrowers
would make their payments to second-tier servicers, who would then make payments
to the primary servicers.
With the
payments going through its hands, the second-tier servicer has command of
information on the borrower�s payment history.
In contrast to the primary servicer, however, the second tier servicer
will use the information to provide useful services to the borrower.
The services, for which the borrower will pay a modest monthly fee, will
be provided over the internet.
Access
to Payment History:
The major purpose of this service is to provide peace of mind that the lender is
properly crediting mortgage payments. Many borrowers, and especially those who
make extra payments, are extremely anxious about this.
The SSB would
allow borrowers to monitor their accounts continuously, and �what-if�
capacity would allow them to experiment with different future payment patterns.
This would allow borrowers to actively plan the amortization process,
instead of passively watching it unfold.
Access
to Details of ARM Rate Adjustments: The
major purpose is to provide peace of mind that the new rate has been properly
calculated. ARM borrowers worry about this.
The SSB would show the details of the ARM rate adjustment, rather than
just the resulting new rate, which is all they get now.
Borrowers will also be able to forecast what the new rate will be months
in advance so they can prepare for a possible refinancing.
Cost
Reduction Refinance Opportunities:
The purpose is to flag profitable refinance opportunities.
The SSB would continually monitor the relationship between the
borrower�s interest rate, current market rates, and the borrower�s credit as
affected by his mortgage payment record. On
ARMs with rate adjustments scheduled within the next (say) 4 months, refinance
analysis would be based on the new rate forecasted at the adjustment.
Cash-Raising
Opportunities:
The purpose is to provide borrowers who request it with a tool for
assessing alternative ways to raise cash. The
system would already know many of the required data inputs, including the
borrower�s existing mortgage balance and terms, as well as current market
terms. Other data inputs, such as
the amount of cash needed, would be entered by the borrower.
PMI
Termination:
The purpose is to give the borrower a �heads-up� that it may be
possible to terminate mortgage insurance. This
is a major concern to many borrowers because automatic termination under the
Federal legislation passed in 1999 does not take account of extra payments to
principal, or house price appreciation. Earlier
termination that does take account of these factors requires that the borrower
take the initiative. The SSB would
do this for the borrower, flagging a termination opportunity when it arose.
Alternative
Payment Options: The
purpose is to allow borrowers to pay biweekly, bimonthly or weekly. Borrowers may prefer one of these options
because they find the schedule more convenient, or because they want to
build an early payoff plan around shorter payment periods.
The
firms offering SSBs will be positioned to extract maximum value from them
through the sale of services that borrowers may need.
If the system reveals a refinance opportunity, for example, the second
tier servicer will be much better positioned to become the new lender than the
primary servicer.
Copyright
Jack Guttentag 2003
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