Opinion: Why fintech “disruption” doesn’t work in mortgage servicing
America’s $13.3 trillion mortgage servicing sector shouldn’t be “disrupted” by financial technology, it should be reimagined with fintech. Most new-to-mortgage fintech folks who overuse the word “disruptor” will start by asking, “What are your requirements?” but that’s the wrong question. The right questions — asked by the right servicing fintech experts — clarify how to improve operational, customer service and compliance models. Only then can the tech solutions begin.
In mortgage servicing, it’s not about “disruption” for the sake of sounding innovative. It’s about nuanced innovation — knowing what changes must happen and when, and executing with no mistakes across scale operations where every tiny detail is highly regulated, all within an ancient infrastructure. It’s about building pathways within the old infrastructure and incrementally replacing it with the new. So, let’s explore three ways this plays out.
Good tech won’t fix bad processes
The mortgage servicing industry, out of almost every industry, has taken the longest to innovate because of its complexity. Customer expectations have evolved, but old processes have been dragged along within legacy technologies.
For this reason, we don’t have only a technology problem in servicing; we have process and technology problems that distract our best asset — our humans — from building long-term trust with homeowners and guiding them through all of their good times and hardships.
Some dominant mortgage fintech players haven’t built tech to solve root issues plaguing our processes. They’ve built shiny, new point solutions addressing small mortgage servicing process issues that are a mere Band-Aid on a bullet wound.
Truly innovative servicing technology must be built by those with the war wounds to understand how the regulatory environment has evolved to lead nearly all servicing operations decisions.
I believe that servicers — and the fintech partners that power them — should incrementally innovate by bringing real-time solutions to real-time policy making. For example, when the CARES Act went into effect to provide mortgage payment relief as the COVID-19 pandemic spiked in 2020, servicers powered by Sagent were ready with push-button forbearances on day one of the CARES relief effective date.
Since then, we’ve continued to add the best minds in fintech and servicing operations to help servicers identify operational opportunities, build systems that can adapt in real-time to policy making and markets and superpower the servicing operators who serve homeowners, regulators and investors.
Good tech won’t fix flawed processes created to accommodate old tech.
Combining Fintech and Servicing Ops Expertise
Any fintech team evaluating a mortgage servicer will quickly discover that big parts of the servicer’s tech stack are decades old. This isn’t for lack of creativity. It’s because servicers are taking care of real-time borrower, regulator and investor needs every day. These needs must be met with, or without, modernized technology.
As I noted above, processes (for meeting these needs) can become flawed and all-consuming when they’re formed around tech limitations.
Of course, the goal is to make servicer processes easier with technology, and we’ll get there by blending fintech and servicing operations expertise. This is a more appropriate innovation model in our complex space than the fintech “disruptor” team coming to you with their non-mortgage resumes telling you how you’re doing it wrong.
Combining fintech and servicing operations expertise means today’s most effective servicing fintech leaders were yesterday’s most effective servicing operators.
I’m living proof of this, having run scale servicing operations for two decades before moving into fintech. In my introduction, I said that servicing innovation is about building pathways within the old infrastructure and incrementally replacing it with the new system. Servicing operators turned-fintech product pros are the teams who can carve these pathways.
Consumer data: a higher standard(ization)
Immense regulatory complexity and lack of data standardization across the industry also slowed down innovation in servicing. Entrenched legacy systems stand in the way of accessing data, and data access — as well as data protection requirements — will only grow in importance as federal and state regulations proliferate and evolve.
To stay ahead on data needs, mortgage servicing fintech solutions must address three areas.
First, homeowners should be able to access their data easily and securely from any device to manage every aspect of their home-owning lives. This includes making payments, analyzing and adjusting tax and insurance escrow accounts in real-time, requesting and processing help for hardships, and viewing and taking action on home value and available home equity.
Second, servicers should be able to deliver all of this to homeowners in their own branded experience, and have customer service teams available to help in real-time, using multiple communications channels (desktop, phone, SMS, etc.), and see the same data their customer is seeing.
Third, all of these servicer and homeowner experiences — and data sharing — must work across the full performing and default life cycle of every loan, seamlessly cover every compliance and investor detail and enable real-time processing and reporting of all compliance and investor requirements.
One example of how this all comes together to serve homeowners can be seen in the Service members Civil Relief Act (SCRA), which offers U.S. service members the benefit of capping their interest rates at 6% — a timely solution in our current high rate cycle.
Smart, real-time consumer, regulatory compliance and investor data can enable servicers to be aware of who in their portfolios may qualify, speed up offers and ensure compliant execution on administering benefits like SCRA. Great process and tech execution in the areas of data, servicer operations, loan program, compliance and customer service needs add up to true innovation.
We need to standardize how data is stored and accessed to pave the way for future innovation — and to stay ahead of renewed regulator focus on consumer data privacy in early 2023.
True mortgage innovation is people, process, product, pathways
The future of the servicing industry demands tech innovation fueled by functional expertise on servicing ops, regulatory management and the actual rules of mortgage servicing — not a one-size-fits-all tech “disruption” model.
It’s about using people, processes and fintech products in tandem to meet the needs and exceed the expectations of servicers, homeowners, regulators and investors. On the ground with servicers, I’m increasingly seeing that the answer is a dual-track model with equal emphasis on:
- Fintech product development and scale tech stack execution run by servicing subject matter experts.
- Servicing operations consulting and advisory partnerships to drive people and process improvements as we build the tech solutions to supercharge those efforts.
At $13 trillion, mortgage servicing is one of the largest markets in the world, and the opportunity to improve how it works for all its participants is commensurately giant. But as we can see from the evidence above, it’s not about “disruption” for the sake of sounding innovative. It’s about nuanced innovation to build pathways within the old infrastructure so we can replace it with the new.
That’s what some of us have dedicated our careers to, and I couldn’t be more excited to accelerate this process with America’s top servicers in 2023.
Courtney Thompson is the chief product officer at Sagent.
This commentary was originally published in the February/March 2023 edition of HousingWire Magazine. To view the full issue, click here.