The mortgage loan has been originated. Now comes the hard part – beginning the long and arduous task of carrying out all the functions required to service the loan. Although the majority of lenders and servicers elect to perform servicing functions in house, huge benefits are to be gained by outsourcing the responsibilities to a trusted subservicer. These benefits include lower costs, more robust servicing technology and assistance with regulatory compliance (this help alone is often worth the move). Why, then, is there hesitation? This article addresses the 5 biggest misunderstandings about outsourcing mortgage loan servicing and what lenders and servicers need to consider and assess before opting to keep the servicing in house.
Misunderstanding #1 – Our credit union has the same per-loan cost to service in house as an outsourcing company.
Clarification – The real question here is what the credit union’s per-loan cost includes. More often than not, in-house servicers fail to calculate a comprehensive, fully loaded per-loan cost to service and therefore are not making like comparisons. For example, they exclude many fixed and variable costs (such as staff salaries, benefits and training, licensing fees, office supplies, postage, etc.) that are standard and customary when servicing a mortgage. Default costs and costs that stem from servicing mistakes – compensatory fees, etc. – are also typically excluded from their calculation. Let’s consider an industry perspective. Annually, trade organizations publish survey results of the typical cost to service based on loan portfolio sizes. According to the latest survey, financial institutions can expect to incur an average cost of $312 a year per loan for in-house servicing. Now compare the $312 in-house average to the average $75 annual per-loan price point of a leading outsourcer. True comparisons of actual per-loan costs for in-house versus out-of-house servicing reveal that substantial savings are gained by moving to an outsourced servicing strategy.
While sitting on my mythical mountaintop with my mythical beard flowing, some mythical predictions for 2017 have come to me and I feel compelled to share them (Denise told me I had to).
The New MBL Rule
For credit unions that have experienced business lenders, the new MBL Rule will enable them to customize their loan offerings that will make them very competitive with the community banks and annoy the banks even more. For credit unions that do not have experienced business lenders but still make business loans, there will be many deer in the headlight moments as the credit unions try to explain why they made a loan to a member who convinced the credit union that the pet rock business was coming back and no security and guarantee was needed for the loan.
The community bankers trade association’s law suit against NCUA will fail but not before the trade association receives increased dues to fund their Don Quixote mission and not before their attorneys upgrade their boats from the fees earned.
This also is a loser for the community bankers. The current rule is less expansive than the membership rule enacted during the time Dennis Dollar was Chair of NCUA and the bankers lost that court battle. I need to get to know the attorneys for the community bankers. They are going to have really nice boats.
Last year our keynote speaker, Erik Wahl brought music, painting and words of inspiration to kick off the event. This year we are excited to bring sports legend Dan Marino to the main stage, courtesy of Mastercard. Rather than hearing a speech, Dan has agreed to a more casual Q & A setting where you’ll get to hear how leadership, teamwork, intense preparation and perseverance creates champions and winners.
A first-round draft pick by the Miami Dolphins in 1983, Marino became an instant NFL sensation, setting the standard for quarterback excellence. He became the only rookie quarterback ever to start in the Pro Bowl (1983) and was named the NFL’s Most Valuable Player in his second season (1984). The nine-time Pro Bowler (1983-87, 1991-92, 1994-95) played in18 playoff games and led the Dolphins to the Super Bowl in 1985 against San Francisco.
Upon retirement, Dan held 25 NFL regular-season quarterback records and was tied for five others, quarterbacked Miami for 17 years, positioning the Dolphins as perennial championship contenders throughout his career. One of three players ever to do so, he twice won the Dolphins’ Community Service Award (1996 and 1998), and was named the NFL Man of the Year in 1998. Dan was inducted into the Pro Football Hall of Fame in August 2005 and in 2010 he was ranked number 25 on the NFL’s Top 100 Greatest Players list.
I have been working with credit unions a long time. For years I have accepted without question the concept that credit unions may only admit members who qualify as being within the credit union’s field of membership; be it a common occupation or association or a common defined community. But with the issuance of the proposed NCUA changes to the field of membership rules, I ask myself, in the land of the free and the home of the brave where freedom of choice is sacrosanct, why does this odd notion continue to exist? Yes I know it is in the Federal Credit Union Act but it is an outdated concept.
When the Federal Credit Union Act was passed in 1934, all financial services were locally provided through local branches. There was no Internet and home banking software. A member had to walk up to a teller to do his or her business. Common bonds served as a means to locally organize a group of people to make a financial institution viable. Today, if a credit union has the necessary technology tools, the credit union can serve anyone in the country. Many members are well served by their credit unions without ever stepping into a branch.
I am a strong supporter of NCUA’s recent efforts to define fields of membership as broadly as possible but there are some old concepts that NCUA has permitted to linger. The notion that a community cannot be adequately served if a branch is not within 25 miles is a concept that needs to be retired. What is the magic of 25 miles? Is 25 miles the distance that a horse and buggy can travel in a day? Having arbitrary limits on the number of persons that can constitute a community also makes no sense.
Each month we are highlighting at least one NACUSO member with an interview style format that is meant to be fun and informative. This month our focus is on NACUSO’s newest member, the National Credit Union – Information Sharing and Analysis Organization (NCU-ISAO)
What’s your current position and can you give me a brief overview of what it is you do in your work?
I am the CEO and Executive Director of the National Credit Union – Information Sharing and Analysis Organization. (NCU-ISAO). This is a not for profit specifically targeted at helping the Nations Credit Unions accelerate their cyber maturity and build resilient systems to support their members.
What would you say most motivates you to do what you do? What are you most excited or passionate about?
The credit union model of people helping people is an incredible culture. It is this culture upon which the ISAO is founded and operates. Credit Unions are an integral part of the communities in which they exist, and a critical financial resource to the members they serve.
I want to hear the story of how you came to work with credit unions. What attracted you to work for NCU-ISAO?
I learned about the CU culture while working at PSCU, a CUSO located in St. Petersburg Florida. While I came to PSCU to work in financial services, I quickly recognized the magic of the Credit Unions and their interaction with the communities.
In an effort to learn more about the changing credit union landscape and key issues of executives, CU Service Network partnered with Edge (Kordeleski) Consulting to compile a comprehensive survey on Shared Services and pain points. Sixty credit unions in the Rocky Mountain and Plain States, ranging from $30M to $1.6B total assets, participated in the survey.
One question in particular illustrated the increasing pressure on credit unions and the need for collaboration-mindedness. The question referenced top issues facing credit unions in the next five years, and how critical each of those issues were to the participating credit union based on a scale of “completely agree” to “strongly disagree.” The issues were as follows:
Americans love freedom of choice, be it in cereals, cars or financial services. When I began representing credit unions, the consumer protection philosophy was to give the consumer information and let the consumer make their own informed decision. That is how we got Regulation Z and APR disclosures. The concept is that people have the right to make their own choices but the government can require the financial services providers to state the terms of their loan offerings in a manner that enables consumers to compare offerings (the “Knowledge Approach”).
The CFPB takes a different philosophical approach. The CFPB has so tightly defined the terms of financial products; it is now in the business of prescribing which financial products may be offered. The burden is on the financial services provider not the consumer to determine if the consumer is financially able to repay a loan. The CFPB’s world view seems to be that all lenders are actual or potential predators; a pack of wolves ready to pounce. The public are sheep who do not have the ability to analyze and make good financial decisions on their own. Therefore the CFPB must prescribe which financial products the providers will be permitted to offer (“Restricted Market Approach”).
Here’s a summary of the possible election impact from former NCUA Chairman Dennis Dollar:
“There is no doubt but that the Trump victory, coupled with the Republicans retaining control of the House and Senate, will bring about changes at both the NCUA and the CFPB. If history holds true, it is likely that Trump will make the sitting Republican board member McWatters into NCUA Chairman shortly after he is sworn in. The second board member nominated in 2017 will be another Republican, probably much more aligned with McWatters than with the Matz and Metsger approach at NCUA. That change, coupled with Metsger’s term expiring in August 2017, will have an impact on the second FOM regulation and likely the supplemental capital issue as well. Both are much more likely to move under a Chairman McWatters.
NACUSO Visits NCUA to Discuss the CUSO Registry and CUSO Reviews
On June 14, Jack Antonini, NACUSO President and Guy Messick, NACUSO General Counsel met with NCUA Staff on the results of the CUSO Registry and the thinking on how CUSO Reviews will be handled.
The CUSO Registry sign-up period and the follow-up by NCUA found there were approximately 900 CUSOs. NCUA believes that there are more CUSOs that have not reported. Under the NCUA Regulations (Part 712.1(d)), “A CUSO also includes an entity in which a CUSO has an ownership interest of any amount, if that entity is engaged primarily in providing products or services to credit unions or credit union members.” So these subsidiary CUSOs are considered CUSOs and required to make annual reports to NCUA. The NCUA staff believes that many CUSOs were not fully aware of this requirement and there are a number of subsidiary CUSOs that have not reported. NCUA will be following up with CUSOs to obtain these filings. NCUA is also scrubbing the data and asking for clarification if the data is indicating that there may have been a reporting error. (more…)
Through the support of our partners, NACUSO raised approximately $63,000 in contributions toward its Legal and Litigation Fund in 2014 with a primary purpose to develop strategies for the most effective way to seek the repeal and/or mitigation of the impact of the CUSO Rule that NCUA had adopted in November 2013. Subsequently, NACUSO established an Advocacy Fund to supplement the Legal and Litigation Fund. The goal of the two funds together were to enable NACUSO to coordinate legal decision making, with a crucial advocacy component that will have more impact than the always risky option of legal action. In total, $190,600 was contributed to the NACUSO Advocacy Fund. Combined these two related initiatives received total contributions from NACUSO partners of approximately $253,600 in 2014 and 2015.
In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars, we would like to provide you with the following information. NACUSO spent the following amounts from the two funds during 2014 and 2015:
As most of you know, all CUSOs are obligated under the NCUA Regulations to register certain information directly with NCUA on an annual basis. Over 800 CUSOs did so in February and March. NCUA is now in the process of making sure all CUSOs have registered. Their new deadline is April 30. They are taking CUSO information from the credit union 5300 call reports and sending out letters reminding “CUSOs” that they have to register. Some credit unions may have incorrectly listed a company as a CUSO. Other credit unions list their CUSO but use an acronym for the CUSO instead of the CUSO’s full name. NCUA, not knowing better is sending letters to any and all companies listed on the call reports. (more…)
Letter to NCUA regarding CUSO Registry Acknowledgement: Yesterday, NACUSO informed you of a change we negotiated with our General Counsel (Messick & Lauer) with the NCUA regarding the CUSO Registry Acknowledgment each CUSO is required to agree to when submitting their CUSO registration in the NCUA’s CUSO Registry system. As we pointed out in our Regulatory Alert yesterday, the acknowledgment required CUSOs to agree to be bound by statutes that only apply to credit unions and which imposed penalties that are not applicable to CUSOs.
During the process of assisting with CUSO Registry questions, it came to our attention that in order to complete the CUSO Registry, CUSOs were required to agree to be bound by statutes that apply to credit unions and which imposed penalties that are not applicable to a CUSO. On behalf of NACUSO and the many CUSOs in this industry, Messick & Lauer (NACUSO’s General Counsel) have advocated and negotiated to revise this acknowledgement to more accurately describe the duty of CUSOs to respond to the CUSO Registry. It is a contractual duty with the credit union and not a direct regulatory obligation to NCUA. As NCUA continues to pay more attention to CUSOs, NACUSO will continue to take action to be the voice of CUSOs and to resist any attempts at regulatory overreach. The NCUA has changed the acknowledgement text. For your reference, the text of the previous and current CUSO Registry acknowledgments are below. (more…)
NCUA’s CUSO Registry Training & Demonstration webinar held on February 11 is now available to be viewed. If you missed the webinar, or want to view it again, to help you in completing the CUSO Registry, you can watch it by clicking on the following link: View 2/11/16 Webinar. You have until March 31, 2016 to complete your initial registration of all CUSOs.
As part of the launch of the CUSO Registry, NCUA is hosting a free webinar on how to use the system on Thursday, February 11, beginning at 2:30 p.m. Eastern. Participants can Register Here for 2/11/16 Webinar
Credit unions and credit union service organizations can now get additional guidance on NCUA’s CUSO Registry from a new agency website page. Registration for the CUSO Registry opens today and continues through March 31. The new website page explains the agency’s requirement that CUSOs report information directly to the agency if they wish to work with credit unions and provides links to related resources available to help those completing the registry. You can link directly to the CUSO Registry from the resources page.