From National Mortgage News
These days, just about everyone is keen on originating more home-equity products, and home-equity lines of credit are at the top of many a lender's wish list.
The challenge for some, though, is how to service these complicated loans?
GMAC Mortgage, itself a top 10 residential mortgage servicer, is hoping to expand its subservicing business by offering its expertise in HELOC servicing as well as the servicing of other residential mortgages to lenders that don't want to service loans in-house.
Wes Howland, vice president of business development at GMAC, said that the company has 250,000 active HELOCs under management already. In part, GMAC's expertise in servicing HELOCs stems from its acquisition of Ditech, a non-conforming lender, several years ago. That acquisition diversified GMAC's own production pipeline to include more products, including HELOCs.
Home-equity products industrywide have also gotten a boost from "piggyback" lending, in which a second lien is attached after a first mortgage in order to eliminate the need for private mortgage insurance.
"We have a lot of capabilities as it relates to the product," Mr. Howland told NMN. "And because we service both HELOCs and first mortgages, we can subservice both products for the client."
Servicing both the first mortgage and the related second lien secured by a property is particularly useful when loans become delinquent, because the status of the first mortgage can be key to making loss mitigation decisions on the second mortgage.
GMAC services all of its mortgage and home-equity products from one servicing platform, automated by Fiserv's MortgageServ technology, to increase servicing efficiency. That also helps GMAC apply lessons learned from the servicing of one loan type to other loan products.
"It also allows us to leverage the expertise we have in various products across all our products," Mr. Howland said.
In the past, most lenders set up servicing "silos" for different products, Mr. Howland explained. That meant that systems and staff had to be dedicated to each loan type. But with HELOCs, other home-equity loans and first mortgages all residing on one system and managed by one staff, GMAC has greater flexibility to manage its personnel, directing resources to whatever product or area is in need at a given moment.
That HELOC capability may prove to be a strong selling point. Already, Mr. Howland said that GMAC has been seeing quite a bit of interest from both existing clients and new prospects over the last couple of years.
He points out that servicing HELOCs has a lot of nuances with which the typical first mortgage lender might not be comfortable. HELOCs can carry fixed or variable rates, teaser rates, monthly rate changes, tiered rates based on line usage, different billing methods, as well as multiple payment options. In addition, consumers can draw on the accounts through multiple mechanisms, such as checks, credit cards and automatic debit payments.
He said it is critical for a subservicer to talk to clients before taking on loan management to make sure the servicer has a full understanding of the product that a lender is originating.
Generally speaking, the first reason loan originators turn to a subservicer to handle loan administration is because it is more cost effective than managing their own loan servicing network.
But there are other motives as well, Mr. Howland explained. A subservicer can relieve an originator of regulatory compliance concerns and legal issues.
And when it comes to HELOCs, an expert such as GMAC may be able to manage more different types of loan products than a lender could with their internal loan servicing capabilities. That means a lender can still originate a product even if they can't manage loan administration of a particular product on their own.
"We are getting a lot of companies coming to us because they either don't do HELOCs at all, or perhaps their system isn't robust enough to handle all of the HELOCs in the marketplace," he said.
He says GMAC likes it when a client transfers servicing to GMAC right away after a HELOC is originated, which is less confusing to the borrower than if servicing is brought in after payments have been made on the account.
Mr. Howland said GMAC is also receiving interest from lenders expanding into other new products, such as option ARM loans, that might pose servicing challenges they would rather outsource to a specialist. As refinancing slows down and lenders expand into new products in search of volume, that might fuel growth in the subservicing market as a whole.