How Customer Recapture Affects the Value of Mortgage Servicing Rights

Prepayment speeds is a major concern for owners of MSRs and Excess MSRs as homeowners continue to be bombarded with solicitations to refinance their mortgage. Investors base the price they pay for MSRs and the rate of amortization of those rights on, among other things, projections of the cash flows from the related pool of mortgage loans. The expectation of prepayment speeds is a significant assumption underlying those cash flow projections. If prepayment speeds are significantly greater than expected, the carrying value of the MSRs will decrease in value. When the carrying value of MSRs exceed their fair value, investors are required to record an impairment charge, which results in a negative impact on their financial results.

Let me be clear, customer retention is keeping the customer in their existing loan and customer recapture is refinancing the customer into a new loan. Fannie Mae, Freddie Mac and private investors support retaining customers over recapture yet the majority of mortgage loan servicers do not have programs in place to actually retain customers. Mortgage loan servicers’ reported that they use “recapture” as a primary customer retention solution. Retention through recapture, which some servicers reported reaches 30% to 40% of their portfolio, increases prepayment speeds. The recapture option directs customers to a loan officer to create a new loan which is not necessarily the best solution for the customer. The customer pays thousands of dollars and servicers compensate a mortgage loan originator to create a new loan, albeit for less because this is an internal referral. Because mortgage loan originators receive compensation solely from the creation of new loans, this creates even less incentive for a discussion with the customer about their existing loan and options. Customer retention programs must be built on a solid understanding of customer drivers, rationalized with the company business strategy and supported with measurement systems. But there’s still one thing missing. Employees must be encouraged to do the right thing, so linking measurements to rewards is critical.

Greg Glassman, creator of the biggest fitness phenomenon in the world right now called “CrossFit”, says the secret to his astonishing success is: “I’m doing the right things for the right people for the right reasons.” Mortgage loan servicers could learn a lot from Greg Glassman’s philosophy. The value of MSRs is increasing as prepayment speeds are decreasing but this is largely because the average interest rate of an existing 30 year mortgage today is 4.125%. Many of these homeowners with very low interest rates are living in homes that have greatly increased in value since they last refinanced. If these homeowners talk to a typical loan originator mony will be convinced to refinance. The servicer could retain these borrowers by providing them a home equity loan or line.

The value of a strong execution of customer retention can create multiples of the servicing value. There is significant value in servicers providing retention specialists that educate customers about their existing mortgage prior to discussing refinancing options and alternatives to refinancing.

aboutMYmortgage.com is a patented process for improving retention rates designed to improve the sale value of the MSR asset and reduce some of the negative convexity associated with poor customer retention rates and faulty recapture programs. aboutMYmortgage.com finds borrowers who are online seeking to refinance and delivers them to their current servicer before they make a commitment to another lender. Servicers can provide homeowners an upgraded understanding of all options available to them including but not limited to mortgage calculators with the facts about their present loan, refinancing, loan comparison calculators, home equity loans/lines, mortgage modification, bi-monthly payment programs, escrow analysis, reamortization/recasting, short sale, advice and other products and services (training for retention specialists is available with options that adapt to the servicer’s needs). aboutMYmortgage.com’s patented process provides servicers the opportunity to retain customers when it benefits their customer and recapture customers when a new loan is inevitable. Furthermore, servicers can provide homeowners the opportunity to discuss concerns and resolve issues directly with their servicer instead of submitting a complaint to the CFPB, another regulatory body or the press.

aboutMYmortgage charges a flat fee for returning customers to their servicer versus thousands of dollars in future profits lost when they refinance with another lender. aboutMymortgage.com’s proactive tools for borrower communication helps MSR owners and servicers protect and defend assets, incomes and reputations.

If you own MSRs/Excess MSRs, service loans for yourself or subservice loans for others contact us today to schedule a meeting. Contact me directly Tim Allen, CMB | phone: 219.571.5440 | email Tim@aboutMYmortgage.com or visit http://servicer.aboutMymortgage.com