DO YOU SERVICE YOUR OWN LOANS? Maybe you should...
The Value of Servicing – Lenders and mortgage bankers have demonstrated that the annuity that is servicing creates generational wealth. A review of the balance sheets of some publicly traded mortgage bankers shows certain servicing rights are valued at 17 times fees. As an example, a $1 billion portfolio with fees of 10 bpts could be worth $17 million to the servicer ($1 billion x 10 bpts x 17 = $17 million) in addition to the annual servicing revenue of $1 million.
If you consider that as a lender, you may earn a 1.00% origination fee on a $1 billion portfolio, $10,000,000, you split fees 50% with the producers, $5,000,000 and pay the operating costs of the company, $2,500,000? you are left with $2,500,000. Adding servicing revenues and servicing rights values to the company creates an organization of lasting wealth.
In addition to wealth creation for mortgage-banking heirs, servicing can provide value for a lender today:
Refinance and Assumptions – If you already know the borrower and property and you as the servicer/lender are already top-of-mind, underwriting a refinance or assumption is much faster and easier than a new origination.
A Look at the Next Deal – Since the borrower knows you and your team, you may be the first source of financing they turn to for their next project. Also, if you are servicing their current loan, you have the opportunity to market to them monthly through billing statements and other email marketing.
Risk Mitigation – If you are servicing the loan, you will have first-hand knowledge of taxes, insurance, operating statement and rent roll data on the building and can enact loss mitigation activities to contain any losses.
Summary – Many lenders and mortgage bankers entered the lending business to originate loans to earn often sizable fees. A longer view of the business may reveal that the revenue and wealth-generation created by servicing is the more important game. The good news is if you want to become a servicer of your own loans, you can hire a servicer to create a white-label servicing brand or engage in a “Build-Operate-Transfer” model where servicing capability is created and then wholly transitioned back to your company.