An Engineering Feat.

EVEN BEFORE THE INDUSTRY WOKE UP TO FIND THE REFIS GONE, SERVICING HAD undergone a sea change. The customer-for-life mantra was heard everywhere, and the economics for pursuing it were well accepted. Now, with refis gone, servicers simply don't have the heavy load of new loan setups and payoffs to get in the way of delivering on it.

The new mantra bridges the divide between production and servicing that had made mortgage companies dysfunctional for years. Much of this new understanding of how servicing and production need to work together to preserve customers has been cemented by better data on whole company profitability and new accounting that forced the issue.

And the research just keeps getting better and better at shining the floodlights on areas of servicing that hold the key to better profitability. Research has revealed the countless interdependent pieces of the puzzle that contribute to servicing's costs, revenues and bottom line. And there are about as many strategies as there are pieces of the puzzle to push around.

This brings us to some of the more interesting findings from servicing research showcased in this issue. The first complete edition of a new servicing study produced by the Mortgage Bankers Association of America (MBA) reveals that direct cost economies don't run on endlessly as portfolios mushroom. But the point at which they peter out may come as a surprise. The data in this study shows direct-cost economies of scale playing out at about 150,000 to 350,000 loans. Hardly a big portfolio.

But costs are only one side of the coin. Revenues per loan serviced are also essential, and the big guys, it turns out, are very adept at generating higher revenues per loan. MBA found that servicers in the study with portfolios of 750,000 loans or more raked in $491 in total servicing revenues per loan. They pulled in $423 per loan just in servicing fees. That compares with just $259 per loan in total revenue for servicers with less than 50,000 loans, the smallest group in the study.

Another study by KPMG, also highlighted in this issue, spotlights areas where technology can be engineered to significantly reduce the heavy labor costs of servicing's most costly functions. The article notes that e-servicing is on the horizon to completely rewrite the business model all over again. So welcome to one of the more complicated sides of the mortgage banking business--where profits are hard won.

JANET REILLEY HEWITT

Editor in Chief