Opinion: Why fintech “disruption” isn’t working in mortgage servicing

America’s $13.3 trillion mortgage industry should not be “disrupted” by fintech, it should be reshaped with fintech. Most mortgage fintech newbies 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 fintech experts – clarify how to improve operational, customer service and compliance models. Only then can the technical solutions begin.

In mortgage servicing, it’s not about “disruption” to sound innovative. It’s about nuanced innovation – knowing what changes need to happen and when, and executing flawlessly across scale operations where every last detail is highly regulated, all within an ancient infrastructure. It is about building roads within the old infrastructure and gradually replacing it with the new. So let’s explore three ways this plays out.

Good technology will not fix bad processes

The mortgage servicing industry, of almost all industries, has taken the longest to innovate due to its complexity. Customers’ expectations have evolved, but old processes have been dragged along within older technologies.

For this reason, we don’t just have a technology problem in service; we have process and technology issues that distract our best asset—our people—from building long-term trust with homeowners and guiding them through all their good times and difficulties.

Some dominant mortgage fintech players have not built technology to solve root problems plaguing our processes. They’ve built shiny new point solutions that address small issues with mortgage processing processes that are just a Band-Aid on a bullet wound.

Truly innovative service technology must be built by those with the scars of war to understand how the regulatory environment has evolved to guide nearly every service decision.

I believe that service providers – and the fintech partners that drive them – should incrementally innovate by bringing real-time solutions to real-time policymaking. For example, when the CARES Act took effect to provide mortgage payment relief as the COVID-19 pandemic surged in 2020, Sagent-powered officials were ready with push-button forbearance on day one of CARES aid’s effective date.

Since then, we’ve continued to add the best minds in fintech and service operations to help service providers identify operational opportunities, build systems that can adapt in real-time to policymaking and markets, and superpower the service operators that serve homeowners, regulators and investors. .

Good technology will not fix flawed processes designed to accommodate old technology.

Combines Fintech and Service Ops Expertise

Any fintech team evaluating a mortgage servicer will quickly discover that much of the servicer’s technology stack is decades old. This is not for lack of creativity. That’s because service providers deal with real-time lending, regulator and investor needs every day. These needs must be met with or without modernized technology.

As I mentioned above, processes (for meeting these needs) can become flawed and all-consuming when formed around technical limitations.

The aim is of course to make service processes easier with technology, and we get there by mixing fintech and service operation expertise. This is a more appropriate model of innovation in our complex space than the fintech “disruptor” team that comes to you with their non-mortgage resumes and tells you how to do it wrong.

Combining fintech and service operations expertise means today’s most effective service fintech leaders were yesterday’s most effective service operators.

I’m living proof of this, having run scale services businesses for two decades before transitioning to fintech. In my introduction I said that service innovation is about building roads within the old infrastructure and gradually replacing it with the new system. Service operators who are ready with fintech products are the teams that can carve these lanes.

Consumer data: a higher standard(isation)

Enormous regulatory complexity and a lack of data standardization across the industry also slowed service innovation. Entrenched legacy systems stand in the way of data access, and data access—as well as data protection requirements—will only increase in importance as federal and state regulations proliferate and evolve.

To stay ahead of data needs, mortgage 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. This includes making payments, analyzing and adjusting tax and insurance escrow accounts in real time, requesting and processing hardship assistance, and viewing and taking action on home value and available equity.

Second, service providers 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 communication channels (desktop, phone, SMS, etc.), and seeing the same data that the customer sees.

Third, all of these servicing and homeowner experiences—and the data sharing—must work across the entire performance and default lifecycle of each loan, seamlessly covering all compliance and investor details and enabling real-time processing and reporting of all compliance and investor requirements.

An example of how all of this comes together to serve homeowners can be seen in the Service Members Civil Relief Act (SCRA), which offers American service members the benefit of capping interest rates at 6%—a timely solution in our current high interest rate cycle. .

Smart, real-time consumer, compliance and investor data can enable service providers to be aware of who in their portfolios may qualify, speed up offerings and ensure compliance with the administration of benefits such as SCRA. Great process and technology execution in the areas of data, service operations, loan program, compliance and customer service needs constitutes true innovation.

We must standardize how data is stored and accessed in order to pave the way for future innovation – and to be at the forefront of the regulator’s renewed focus on privacy for consumer data in early 2023.

True mortgage innovation is people, process, product, roads

The future of the servicing industry requires technological innovation driven by functional expertise in servicing operations, regulatory governance and the actual rules of mortgage servicing – not a “one-size-fits-all” technological “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 service people, I increasingly see that the answer is a two-track model with equal emphasis on:

• Fintech product development and scale execution of technology stack driven by service experts.
• Service operations consulting and advisory partnerships to drive people and process improvements while building the technology solutions to power these 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 participants is equally great. But as we can see from the evidence above, it’s not about “disruption” to sound innovative. It is about nuanced innovation to build roads within the old infrastructure so that we can replace it with the new.

It’s what some of us have dedicated our careers to, and I couldn’t be more excited to accelerate this process with America’s best service people in 2023.

Courtney Thompson is product manager at Sagent.

This commentary was originally published in the February/March 2023 issue of HousingWire Magazine. To see the entire issue, click here.