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Loan Administration for the New Century presentation at The Servicing Management Workshop

Loan Administration for the New Century presentation at The Servicing Management Workshop. Doug Duncan MBA Chief Economist June 21, 2000. 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?

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Loan Administration for the New Century presentation at The Servicing Management Workshop

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  1. Loan Administration for the New Centurypresentation atThe Servicing Management Workshop Doug Duncan MBA Chief Economist June 21, 2000

  2. 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?

  3. In considering those questions we will cover... • Company/Servicing Profits • Costs • Revenues • Demographic factors

  4. …by using data from... • The Cost Study • The Cost of Servicing Study • MBA/Stratmor Peer Group Roundtables • IT Cost Study (this is pro forma)

  5. …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

  6. MBA Research Department Data Tools

  7. Question 1: Will only the big live long? (total company) Percent The Cost Study - 1998 data

  8. Question 1: Will only the big live long? (servicing only) Percent The Cost Study - 1998 data

  9. 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”)

  10. 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)

  11. Weighted Average Return on Required Equity Source: Peer Group Roundtables

  12. PGR Servicing RORE Comparison

  13. COSS Sample Characteristics • 35 participants • Annual data collection • Operational analysis • Coordinated data definitions with the PGR • Full spectrum of companies by size

  14. 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

  15. Net Income per Loan Serviced

  16. Net Income per Loan Serviced

  17. Servicing Portfolio Dollar Volume

  18. Adjustments To Income

  19. Net Operating Income

  20. Net Operating Income

  21. UPB Hedged

  22. Servicing Portfolio Investor Mix (Full Sample)

  23. Investor Mix (< 50k serviced)

  24. Investor Mix (50-150k serviced)

  25. Investor Mix (150-350k serviced)

  26. Investor Mix (350-750k serviced)

  27. Investor Mix (750k or > serviced)

  28. Question 2: What’s up with cost economies? • Direct vs total • Outsourcing • Productivity • Technology • Other

  29. Direct Cost per Loan Serviced

  30. Indirect Cost per Loan Serviced

  31. Cost per Loan Serviced

  32. Direct Cost: Escrow Administration, Taxes, and Insurance (5 column)

  33. EATI Productivity loans/fte

  34. EATI Salary

  35. Outsourcing: EATI

  36. Servicing Productivity

  37. Technology Cost

  38. EDP Cost By Servicing Department

  39. Communications Cost By Servicing Department

  40. Systems Cost Distribution Note: avg. of 9.37 fte’s

  41. Systems Cost per Loan Serviced

  42. Direct Default Cost per Loan Serviced (5 column)

  43. Direct Default Cost per Loan Serviced

  44. Payment System (Full Sample)

  45. Payment System (<50k serviced)

  46. Payment System (750k> serviced)

  47. Question 3: Is there really revenue other than servicing and late fees? • Total revenue • Servicing fees • Subservicing • Late fees • Ancillary income • Escrow

  48. Total Revenue per Loan Serviced

  49. Average Loan Size Serviced

  50. Servicing Fees per Loan Serviced

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