Get documents about "Loan Administration for the New Century
Document Sample
Loan Administration for the New
Century
presentation at
The Servicing Management Workshop
Questions to Administer Loans By
Will only the big live long?
What’s up with cost economies?
Is there really revenue other than servicing and late
fees?
Will borrowers cause mortgage bankers any problems?
In considering those questions
we will cover...
Company/Servicing Profits
Costs
Revenues
Demographic factors
…by using data from...
The Cost Study
The Cost of Servicing Study
MBA/Stratmor Peer Group Roundtables
IT Cost Study (this is pro forma)
…and concluding that...
Only the “mid” die young
Direct cost economies are achieved at a fairly low
number of loans serviced
Yes, even you can earn ancillary income
Probably, by being delinquent more than you’d like and
not cross buying as much as you’d like
MBA Research Department Data
Tools
Research Dept. Priorities
Performance Benchmarks Market Data
Industry Aggregates Company Level Analysis
Performance Report Cost Study Production Strategic Servicing Strategic Technology Strategic
PGR PGR IT Cost Study
Production Operational Servicing Operational
COPS (planned) COSS
Question 1: Will only the big live long?
(total company)
Percent 30 26.1 PM NOI
25
19.4 21.1
20 17.3 17.7
14.2
15
9.4 9.1
10
5
0
<1 1 to 4 4 to 20 >20
$ billion serviced
The Cost Study - 1998 data
Question 1: Will only the big live long?
(servicing only)
Percent 70
58.6
60
50
38.9
40
30 23.7
14.3 14.4 10.5
20
9.7
6.7
10
0
<1 1 to 4 4 to 20 >20
$ billion serviced
PM - Svcg NOI - Svcg
The Cost Study - 1998 data
Performance Measures Backdrop
Key Performance Measurement Problems
Book equity is frequently unrealistic --- returns are
therefore distorted
GAAP profits do not reflect the capital risks involved
and market return expectations
Possible Alternatives
Base returns on an Adjusted Equity measure
Evaluate performance based on Mortgage Banking
Return on Capital (“MBROC”)
PGR Servicing Equity
Equity = Avg Portfolio Balance x Avg Servicing
Value x Equity Ratio
where:
Avg Portfolio Balance = actual average portfolio
balance
Avg Servicing Value = actual portfolio value
Equity Ratio = 33.3% (assumes 2:1
leverage)
Weighted Average Return on
Required Equity
78.9
Percent Production
Servicing
54.3
Total
33.6
19.9
13.1
8.1
1998 1999
Source: Peer Group Roundtables
PGR Servicing RORE Comparison
Percent
57.64
60
50
40
26.62
30 25.37
21.99
20 13.72
8.25
10
0
Group A Group C Group E Group M 1999 Avg 1998 Avg
COSS Sample Characteristics
35 participants
Annual data collection
Operational analysis
Coordinated data definitions with the PGR
Full spectrum of companies by size
Selected COSS Contents
Aggregate income statement
17 direct cost center top line numbers aggregate to the 5 in the PGR
27 direct expense categories within each cost center
9 indirect expense items
13 revenue items
8 technology categories with specific software identification
Company and weighted average payment system data
Company and weighted average collection method data
State-level geographic distribution of servicing volume
Outsourcing data by share of function outsourced
Investor Mix
Net Income per Loan Serviced
$/ln 101
80
69
42
34
<50 50-150 150-350 350-750 >750
loans serviced (000)
Net Income per Loan Serviced
$/Ln 161
101 98
9
-2
0 1.0-9.9 10-24.9 25-49 50>
% government
Servicing Portfolio Dollar Volume
$ bil. 112.2
1-4 Unit
Other
41.1
17
1.9 6.2
0.6 5.4
0.1 0.8 0.6
<50 50-150 150-350 350-750 >750
loans serviced (000)
Adjustments To Income
$/ln 69
17
5
-9 -22
<50 50-150 150-350 350-750 >750
loans serviced (000)
Net Operating Income
$/ln 96
57
51 51
10
<50 50-150 150-350 350-750 >750
loans serviced (000)
Net Operating Income
$/ln 108 107
68
10
4
0% 1-10% 10-25% 25-50% 50%>
% gov't loans svcd.
UPB Hedged
Percent 76
80
70
60
50 39
40 28
30
20 9
0
10
0
<50 50-150 150-350 350-750 >750
loans serviced (000)
Servicing Portfolio Investor Mix
(Full Sample)
GSEs
Ginnie
Private
8 Affil.
8 Other
9
52
23
Investor Mix (< 50k serviced)
GSEs
Ginnie
Private
42 Affil.
21
Other
28
2 7
Investor Mix (50-150k serviced)
GSEs
Ginnie
Private
28 Affil.
Other
32
8 14
18
Investor Mix (150-350k serviced)
GSEs
Ginnie
Private
4 53 Affil.
11
Other
4
28
Investor Mix (350-750k serviced)
GSEs
Ginnie
Private
9 51 Affil.
Other
13
6
21
Investor Mix (750k or > serviced)
GSEs
Ginnie
Private
4 4 Affil.
56
11 Other
25
Question 2: What’s up with cost
economies?
Direct vs total
Outsourcing
Productivity
Technology
Other
Direct Cost per Loan Serviced
$/ln 110
94
86
74
67
<50 50-150 150-350 350-750 >750
loans serviced (000)
Indirect Cost per Loan Serviced
$/ln 355
331
277
231
69
<50 50-150 150-350 350-750 >750
loans serviced (000)
Cost per Loan Serviced
Direct Indirect Total
$/Ln
500
416 422
400 351 355
341 331
277
300 231
163
200
94 110
69 74 86 67
100
0
<50 50-150 150-350 350-750 >750
loans serviced (000)
Direct Cost: Escrow Administration,
Taxes, and Insurance (5 column)
13.64
$/ln
7.8 7.43
6.46
5.31
<50 50-150 150-350 350-750 >750
loans serviced (000)
EATI Productivity
loans/fte 9,382
8,642
6,392
4,611
3,971
<50 50-150 150-350 350-750 >750
loans serviced (000)
EATI Salary
$000/fte 33.5 32.8
31.3
26 26.2
<50k 50-150K 150-350k 350-750k 750k>
loans serviced (000)
Outsourcing: EATI
Percent 38
33
25
22
4
<50 50-150 150-350 350-750 >750
loans serviced (000)
Servicing Productivity
loans/fte
1,040 972
911
714 663
<50 50-150 150-350 350-750 >750
loans serviced (000)
Technology Cost
$/ln EDP
EDP Depreciation
Communications
3.67
7.85
0.35
EDP Cost By Servicing Department
$/ln Customer Service
EATI
0.45 Investor Relations
0.31 0.21 Default
Other (incl. Systems)
6.25
0.63
Communications Cost By Servicing
Department
$/ln Customer Service
EATI
Investor Relations
0.51 Default
Other
1.14
1.73
0.13 0.16
Systems Cost Distribution
$/loan Personnel
EDP
0.93 Occ/Depr/Equip
0.23 0.27 Other
3.53
Note: avg. of 9.37 fte’s
Systems Cost per Loan Serviced
$/loan
8.94
8.61
6.25
2.63
2.18
<50k 50-150 150-350 350-750 >750k
loans serviced (000)
Direct Default Cost per Loan
Serviced (5 column)
30.63
$/ln
27.53
19.39 20.56
15.63
<50 50-150 150-350 350-750 >750
loans serviced (000)
Direct Default Cost per Loan Serviced
$/ln 24.05
21.51 22.37
14.78
12.33
<2% 2-3.5% 3.5-4.5% 4.5-5.5% 5.5%>
% delinquent
Payment System (Full Sample)
% of loans
4
24
Coupons
72 Monthly Billing
Other
Payment System (<50k serviced)
% of loans Coupons
Monthly Billing
4 Other
27
70
Payment System (750k> serviced)
% of loans Coupons
Monthly Billing
5 Other
5
91
Question 3: Is there really revenue
other than servicing and late fees?
Total revenue
Servicing fees
Subservicing
Late fees
Ancillary income
Escrow
Total Revenue per Loan Serviced
468 479
$/ln
392
361
259
<50 50-150 150-350 350-750 >750
loans serviced (000)
Average Loan Size Serviced
$000
93.2 96
90.2 85.6
76.6
<50k 50-150k 150-350k 350-750k 750k>
loans serviced (000)
Servicing Fees per Loan Serviced
$/ln 423
375
335
303
217
<50 50-150 150-350 350-750 >750
loans serviced (000)
Subservicing Fees per Loan
Subserviced
$/Ln
106 For
88 By
80
56
48
41
32
0 3 0
<50 50-150 150-350 350-750 750>
Loans serviced (000)
Average Loan Size
$000
100.6
91 94.8
81
72.8
0% 1-10% 10-25% 25-50% 50%>
share of government loans
Late Fees
$/ln
29.3 29.4
27.8
30 24
25 20.4
20
15
10
5
0
<50 50-150 150-350 350-750 >750
loans serviced (000)
Ancillary Income
$/ln
24
25
20
15 11.4
8.3
10 5 5.6
5
0
<50 50-150 150-350 350-750 >750
loans serviced (000)
Total Revenue and Cost per Loan
Serviced
$/ln
468 479
500 422
417
392
400 341 361 351
259
300
163
200
100
0
<50 50-150 150-350 350-750 >750
Revenue Cost
Question 4: Will borrowers cause
mortgage bankers any problems?
Delinquencies in a recession (cost and fair lending)
Cross selling (regular and low income)
Privacy
Sub-prime
All Loans Past Due
As A Percent of 1-4 Family Loans Serviced
Seasonally Adjusted, (%)
6.50
6.00
5.50
5.00 1980-89 = 5.29
1990-99 = 4.37
4.50
4.00 1972-79 = 4.35
1999:Q4
3.50 3.93
3.00
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0
Source: MBA National Delinquency Survey
Delinquencies
COSS delinquency rate averaged about $22 per loan
at an average delinquency rate about half of the
1984 peak of 6.31%.
There do not appear to be economies of scale in
default management.
There are sub-prime loans newly entered into
servicing portfolios.
Credit scored and high LTV loans have not been
stress tested.
Sub-prime and first timer mortgages are heavily
weighted toward minorities.
Cross Selling to Doug
Credit Union checking
Credit Union savings
Credit Union auto loan
401k through MBA
Insurance through independent agent
Direct purchase of stock
No load mutual fund direct purchase
Wachovia Visa
HomeSide services mortgage (no second or HEL)
College payments in cash
Cross Selling to Low Income
All families vs LI credit cards - 66%-45%
All families vs LI mortgages - 39%-19%
All families vs LI auto loan - 31%-19%
All families vs LI education loan - 12%-11%
All families vs LI CD - 14%-13%
All families vs LI IRA - 26%-12%
All families vs LI life Ins. - 72%-55%
All vs LI ATM, phone, computer - 51%-36%
Privacy
Legislation isn’t done
Consumers may sell their personal information
Who owns the info anyway?
Expect the trial lawyers to get involved
Sub-Prime
State-by-state “predatory lending” legislation could
increase costs substantially for national lenders
Performance in a recessionary environment will be a
new experience
Agency entrance will reduce profitability
…and concluding that...
Only the “mid” die young.
Direct cost economies are achieved at a fairly low
number of loans serviced.
Yes, even you can earn ancillary income.
Probably, by being delinquent more than you’d like and
not cross buying as much as you’d like.
