With fewer loan set-ups and payoffs compared with the previous two years, mortgage-servicing costs decreased and servicing productivity improved in 2004, according to the results of the 2005 Cost of Servicing Study conducted by the Mortgage Bankers Association.

“Now in its seventh year of publication, this detailed operations study is a collaborative effort between MBA and its membership,” said Marina Walsh, MBA’s director of Industry Analysis – Research Department. “Thanks to this collaboration, study participation levels have improved over the years. In the 2005 study, participating companies represented approximately 57 percent of the total U.S. servicing market.” 

Among the study highlights:

  • Weighted average direct servicing costs (including foreclosure and REO, or real estate owned, un-reimbursed expense) dropped to $80 per loan in 2004 from $91 per loan in 2003. Loan servicing productivity improved to 1,188 loans serviced per servicing employee in 2004 from 1,043 loans serviced per servicing employee in 2003.

  • The primary line-item drivers of the cost decreases were: temporary labor costs (dropped 58 percent); permanent labor expense (dropped 12 percent); telephone, postal and supply charges (down 21 percent); and un-reimbursed foreclosure and REO losses (down 32 percent). The functional areas showing the most improvement were post-payoff processing, cashiering, escrow administration, and default – areas that tend to benefit most from fewer setups and payoffs, or lower delinquencies. 

  • Indirect costs and losses also fell in 2004 and contributed to a healthier financial bottom line for servicing. Interest expense paid on behalf of borrowers who prepay during the month dropped 56 percent to $34 per loan in 2004 from $78 per loan in 2003, as prepayments dropped. Mortgage servicing right (MSR) amortization and writedowns (net of hedging gains), averaged $397 per loan compared to a high of $511 per loan in 2003.

  • While per-loan servicing revenues remained relatively constant, the improvements in direct and indirect costs ultimately resulted in a turnaround for net servicing financial income. Unlike the 2001-2003 period, in which net servicing losses averaged between $59-$148 per loan, servicers were closer to “breaking even” in 2004, with average losses of $3 per loan.

In 2005, MBA also initiated a separate subprime analysis to track subprime company servicing income, expense, and operational practices. This subprime servicing study represented an additional 13 percent of the total U.S. servicing market in 2004.

The Mortgage Bankers Association is the national association representing the real estate finance industry.


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