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1.3.3 Servicer Cost Structure

Numerous costs go into servicing residential mortgage loans including personnel, technology, and overhead costs. Servicing performing loans, which is highly automated, is less expensive than servicing non-performing loans, which is more labor-intensive. In order to reduce costs, particularly with respect to non-performing loans, many servicers have offshored or outsourced critical servicing functions. For example, many of the large servicers offshore customer service and collection calls as well as default support.59 In order to manage offshore staff, servicers employ extensive scripting for customer interactions which limits the ability of staff to handle complex tasks and increases the chances of miscommunication.60

Outsourcing of various servicing functions has also become a common cost saving measure. Everything from loss mitigation review and insurance compliance to document preparation (assignments and allonges) and document imaging can be outsourced. Default servicing is often outsourced, but even more routine tasks such as printing and mailing letters and notices are given to third-party vendors. From the borrower’s perspective, there is little transparency regarding these vendors and frequently borrowers are unaware that they may be speaking to or corresponding with a third-party vendor. While regulators have been clear that outsourcing functions does not relieve servicers of their obligations to comply with applicable laws and regulations, servicers often fail to diligently monitor their vendors. The bottom line is that while offshoring and outsourcing may create cost savings for servicers, it also can have a significant negative impact on borrowers.

Servicers also rely heavily on technology to perform day-to-day servicing activities such as processing payments, sending billing statements and notices, and ordering property inspections or property valuations. Unfortunately, “outdated and deficient technology” pose considerable risk to consumers.61 As the Consumer Financial Protection Bureau has noted, technology shortcomings “are compounded by the lack of proper training, testing, and auditing of technology-driven processes, particularly to handle more individualized situations related to delinquencies and loss mitigation processes.”62

Footnotes

  • 59 {59} See Ben Lane, How Much Offshore Staff Do Top Mortgage Servicers Use?, Housingwire.com (Oct. 31, 2014), available at www.housingwire.com.

    In 2017, a Multi-State Mortgage Committee investigation determined that approximately 70% of employees for Ocwen Loan Servicing are located offshore. Findings of Fact and Temporary Order to Cease and Desist and Order to Show Cause and Notice of Right to a Hearing, In the Matter of Ocwen Loan Servicing, Docket No. 2017-01 (Mass. Div. of Banks Apr. 20, 2017).

  • 60 {60} See Ben Lane, How Much Offshore Staff Do Top Mortgage Servicers Use?, Housingwire.com (Oct. 31, 2014), available at www.housingwire.com.

  • 61 {61} Consumer Financial Protection Bureau, Supervisory Highlights Mortgage Servicing Special Edition 3 (June 2016).

  • 62 {62} Consumer Financial Protection Bureau, Supervisory Highlights Mortgage Servicing Special Edition 3 (June 2016).