Navigating Market Shifts in Mortgage Servicing

This is Steward in the Studio, the podcast where mortgage professionals stay ahead of the curve with expert guidance from Steward’s thought leaders. I’m your host, Marvin Stone. And each month, we dive into trends, topics, and tech to transform your business. Let’s do this.

Marvin Stone
Well, hey, everyone. Welcome to the latest episode of Stewart in the Studio. Today, we’re talking about something special with Rich Kugler, our director of sales for Stewart Lender Services. Rich, say hello.

Rich Kugler
Hi, Marvin. Good to be here.

Marvin Stone
Great to have you. And TJ Harrington, heads up a lot of our strategic projects here within the division. Hi, TJ.

TJ Harrington
Good afternoon, Marvin.

Marvin Stone
Great to have you guys on the show. So today, we’re really gonna be focusing on things that are important to servicers, you know, servicers and lenders who are uncertain about the changing market dynamics a little bit. You know, we’ve been through such a flat cycle for so long previous to this with, very very low defaults, you know, high quality portfolios, etcetera. So things have changed, and we’re gonna be talking about what some of those topics are, what some of those key economic factors are for sure. TJ, let’s start with you. Can you just kinda give us a lay of the land on some of the broad economic indicators that really, you know, kinda trigger this whole thing?

TJ Harrington
Sure. It’s such an interesting market, Marvin, where, on one hand, we have we’ve had a higher rate environment that’s slowly coming down. We have a high very high level of consumer debt capacity is strained at an all time high. We see just the beginnings of the it’s you know, you talk about the canaries in the coal mine with student student loan debt, with auto debt and credit card delinquencies.

You know, we joke that those canaries are coughing, but they’re not dead yet. And at the other hand, we see incredibly strong equity positions in the in the home ownership assets. So, on one hand, you’re talking about a home equity market. You’re you’re also talking about possible retention, because we have seen rates tick down.

And so, it’s kind of everything all at once.

You have delinquencies. You have new loss mitigation program programs rolling out from changes from the the COVID programs. And on the other hand, you have potential retention plays and refi. So the economic environment’s kind of been hectic.

We’ve seen rates drop and moderate a little bit. We’ve seen that be a benefit for consumers and across all types of consumer credit. We’ve also seen that be benefit beneficial in the loan mod space. And at the same time, you’re seeing people who have had this consumer debt load, who have benefited from COVID programs finally winning their way through the foreclosure process.

So it’s a little bit of everything. It’s a smorgasbord of of activity all driving down the servicing space today. And it makes it it makes it tough to manage it all. And we’ve seen for servicers just it’s it’s a lot for them to manage from a change management perspective from, you know, you’re struggling with default issues at the same time you’re struggling with originations and retention issues.

So it’s a little bit of everything and been very, interesting to speak with servicers on how they’re managing through this time.

Marvin Stone
Yeah. And we could make this entire episode about just the economic factors around credit card debt being at at record highs. Student loans are coming due. The defaults, I think, are are kind of noteworthy.

Insurance costs are really putting a lot of pressure on homeowners. And then the one thing, Rich, I think we were talking about recently is I saw a statistic where I think housing costs now average forty seven percent of the typical household’s budget just because interest rates have gone up well. You know, maybe wages haven’t stayed the same or have stayed the same. So what are you hearing from lenders as far as affordability and things like that and how this plays into the whole mix?

Rich Kugler
There are so many factors that are affecting the the the overall vision and and long term projections or more more even short term projections in the market because you do have those those constraints being put on consumers at the same time when you have record equity being built up by homeowners. There is some consumer confidence in question right now. I think some of that’s because of the uncertainty of a number of programs the that the administration is looking at. You know, housing policy may have an impact on this as well if if some new programs are developed, those might have different impacts for different segments of the market.

So I think that’s something that servicers would need to look at because they’re trying to really drive retention efforts. They wanna try to make sure if they’ve got loans in the books that those loans don’t don’t attrite off their portfolio and that they’re able to fit those consumers into, as TJ mentioned, either modifications or some other new loan programs that might be a better use for them from a financial standpoint.

Marvin Stone
Yeah. So it sounds like there’s some uncertainty just because this is not the same sort of scenario we’ve seen in the past. You know, in the past, it was all around housing, and you had people in houses that couldn’t afford them. And now you have people who have all this equity, so it’s a it’s a little bit of a different landscape, I think. So, TJ, as far as, you know, steps that that lenders should be taking, you know, how do they keep their, you know, finger on the pulse of this situation? Because it is different. It’s it’s harder to kinda get your arms around. So how do they handle it?

TJ Harrington
It is. So really really what we’re seeing is consumers, it’s call to action for consumers. It’s early outreach when consumers get into into difficulties or become late or delinquent. It’s even proactive monitoring of decrease in credit score from other adverse events. Those canary in the coal mine type scenarios where they’re late on on their auto, they’re late on their student loans, they’re late on their credit cards, that those tend to precede being late on your home payment. Typically, home is the last one that goes because you keep the roof over your head in in a a dire financial circumstance.

The other part of it, Marvin, which makes it very interesting and different than what we’ve seen in the past, the the driver of, as you mentioned, the increase in insurance cost is the rising of tax burdens in insurance driving default. There was a paper from the from the Dallas Fed last in April of last year highlighting that we may be seeing the first mortgage delinquencies and defaults due to climate change, mainly driven vis a vis the rise in in insurance premiums where you see thirty to forty percent insurance premiums. And that becomes a very big challenge where you think about, hey, I have a fixed rate mortgage. Why isn’t my payment fixed? Well, your escrows can still rise and that’s causing that number you mentioned earlier with Rich about the eating away of the household.

The ability to pay is really not necessarily the principal and interest payments, but the ancillary escrow for taxes and insurance. And as such, it’s really behooven to a servicer to get ahead of that to let consumers know what they have, trying to have an effective outreach program as best they are able to and say, hey, there’s still this market for homes. We are seeing more now inventory coming on. There are more sellers than buyers in markets. And, while we’re not seeing massive price decreases, we are seeing increased time on market. We are seeing certain pockets of depreciation. Overall, we’re seeing more moderate appreciation in the one to two percent range.

But that that’s not eroding the strong equity positions consumers have. So they still have options in the market, whether it be through an arm’s length sale in the open market, whether it be an exit to an I buyer, whether it be a sale to another investor, whether it be a lease back type of arrangement. There’s definitely options in the market today for an exit in preserving that that that wealth. And so really, it’s on servicers to try and find a graceful exit for their consumers by being proactive on their portfolio, which in turn preserves value for their investors.

Rich Kugler
TJ, he really hit a a chord of what servicers are really focusing on, servicers and subservicers for that matter, is how do you have the the the foresight and the predictive analytics in play in your portfolio to understand what is going on with your consumers, how can you make them an offer on a loan program or a different a different financing vehicle that can help keep them in the home and help to mitigate any potential losses that you might have.

And that’s really been top of mind is how to implement something like that into the retention strategy and act and and and effectively execute against that as well.

TJ Harrington
And and to your point, Rich, the the we’ve seen just first hand at at Stewart, the rise of HEI, the home equity investment contracts, because you have consumers with massive debt to income capacity constraints, and they have this rich rich pot of gold in the form of home equity, but they’re not able to take on any more debt in the form of closed end or a HELOC to be able to deal with those higher consumer balances. And so, they’re not served traditionally, but at the same time, that does those HEI products by converting the the future equity in a home into a current day solution to, debt issues, it actually drives down delinquencies and increases loan performance.

So it it can be a value add to servicers. If they are looking for a solution where a consumer is not fitting into a traditional credit box, does wanna keep the home, that may be a way of of looking at it. So to your point, I I think part of what we’re what we talked about servicers and other options in the market, that optionality is out there, and we’re doing some education with our HEI partners and some of our servicers and sub service clients.

Marvin Stone
So, TJ, how does that work? I mean, I’m kinda going into early stage preparation versus sort of that reactive response that we saw during two thousand eight when it was just crazy. So now you’re telling me that servicers have more options to help these borrowers who have the equity. They don’t have the income to support all these other factors going on.

But default servicing is challenging already. Right? So now you add this other AGI product into the mix, the home equity investment. How does that work?

TJ Harrington
Yeah. It’s it’s tough, Marvin, because what on one hand, you have servicers and sub servicers who are beholden to the investor. They have regulatory constraints.

They are often reluctant to put a consumer, match them with some provider, match them with some program because ultimately, they own the execution risk potentially around that. But the idea is that there’s a consumer education that has to happen to say, hey, there are these things out there. Go and find them. And that’s been the challenge.

It’s it’s the outreach, Marvin. It’s the consumer education and the saying, hey, here’s a bunch of options that are out there for you. You might wanna look at. There may be a way to tap into your home equity to get get yourself out of this this situation.

And being able to kind of lead them to solutions. And that’s that’s a challenge in the market. And there’s not just a a one size fits all. Here’s the magic bullet to do that. And so, I I think servicers and sub servicers have been pursuing a a I mean, door knock. I mean, good old fashioned door knocking in some situations for outreach. I think it’s a mix of solutions today.

Marvin Stone
Yeah. It makes sense.

Rich Kugler
Well, it’s much more targeted than than in the past. So it’s a much more targeted on the consumer in particular, and the data is available and the implementation strategies are there as well.

Marvin Stone
Yeah. And, Rich, you can I mean, you’ve been with Stewart for a long time? You can can you just shed a little bit of light on when, you know, we had the two thousand eight downturn? Just the the heavy presence we’ve had in that default title space and kind of some of the experience we have there on on our bench.

Rich Kugler
Certainly. Yeah. So that as, you know, as TJ mentioned, that was a much more use the old fashioned term, butts in seats type of approach.

We’re trying to throw more people at a solution rather than today trying to be more thoughtful about what kind of technology can you leverage, what type of a process efficiency can we we put into play. You know, lot of work has been done on the origination side of the house in terms of workflow and decisioning and really trying to improve efficiency. And I think that same approach is being taken by successful servicers where they realize that to scale up very quickly is a very difficult thing to do if you’re relying purely on human capital. But if you can integrate the experience you need from an underwriting perspective and the experience from a consumer point of contact standpoint, then you can put a lot more technology in the workflow and have a much more productive and profitable servicing engine.

Marvin Stone
Which is really critical. Maybe this is where you’re going, TJ, which is really critical because it’s so such a regulated aspect of the industry. You know, consumers need to be treated well, And that’s challenging. It’s it’s just hard to do it well because it’s all in the execution.

TJ Harrington
A hundred percent. And what we’ve seen is multiple services I’ve talked to have begun to to pursue Agentic AI in their call centers.

And the idea is that there is kind of routine phone calls in the servicing space that can very easily be handled by AI. And then, there’s a segment of the call center that needs to be handled by a person. It’s higher touch. It’s more complex.

And so, when you’re when all calls are treated the same and you’re not routed and differentiated, you get long long wait times. You get just not the kind of responsiveness that you need out of your servicer. So by by layering something like Agentic AI, you’re able to kind of triage in ways, hey, this is a what’s my escrow balance? Or when are my taxes due?

Or, I have an insurance issue that needs addressing. Well, that’s that goes to a person. Hey, I’m in distress, and I may be delinquent this month. And, it’s able to say, hey, that’s beyond what I can do as an Agentic AI bot.

Let me put you to the call center and and tee this person up with your account information, with what you’re calling about, and kind of pre set the call so that it’s productive. And I I think that produces better customer service experiences, as well as is way way way more efficient dollars and cents wise for servicers, which as as Richard alluded to, is a very tight margin business. And it’s know, there’s a fixed amount of money per file for handling it. And anything you do to stretch the budget and make investments is, key.

Marvin Stone
Yeah. Rich, is that what you’re hearing as well?

Rich Kugler
Yeah. I think the the key is on not only the, you know, the the result in profitability, but also making sure that the consumer touch is there and done well. Yeah.

Marvin Stone
It’s very hard to do it well. And I think Agentic AI means you have a system where where you can deal with everything. The nuances of each loan, it sounds like, is, you know, each person’s at a different stage. They’re maybe on a different loan program.

They have different criteria for the outreach based on what the investor wants. So it sounds to me like this Agentic AI really gives that that’s probably new. I mean, certainly, it’s new since the last time we had a big buildup in default title and and Yep. Lost met.

So it could be a different whole different experience this time.

TJ Harrington
It’s it’s much different than where where we were in the past as Stewart, which has as Rich alluded to, was butts and seats in a strip mall in Texas doing loan mods, single point of contact for for lenders and servicers. You know, really today, the need to outsource in that manner has gone away in in favor of technology, And this is part of that. The idea that you are able to take the the simple matters and route them the right way. Take the complex matters and route them the right way.

And and, you know, it’s also the kind of lowest hanging fruit for Agentic AI, where part of the use of AI has always been concerns on the regulatory side. What are you telling to consumers? What is the AI doing or saying when you’re touching a consumer? To Rich’s point about the consumer experience, the idea of routing calls and and being very basic, I think, is the the starting point. As you get more in-depth of what you what the AI can do and learn in its scope, you begin to get into regulatory concerns of, hey, are you talking about loan programs? Are you talking loss mitigation? Are you doing things that are licensable activities under a servicer?

What is the role of the Spock versus the agentic AI from a regulatory perspective? I think that the design, as today, for many of the the companies that have stepped into this space, they’ve drawn a hard line between what is complex and falls in the regulatory bucket, and that’s the way that they’ve they’ve been able to go to market very quickly and make a difference in the the life of both servicers and their consumers.

Marvin Stone
Yeah. That’s great progress. So, now we’re gonna step away for just a moment to hear about MCS, which is Stewart’s latest acquisition.

MCS Video –
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Winterization, debris removal, hazard abatement, and FHA conveyance ready preparation, all executed with compliance driven vendor oversight you can trust.

MCS keeps properties in marketable condition, helping servicers meet regulatory and investor requirements while minimizing risk and protecting long term value. So if you are looking for reliable property preservation, inspections, maintenance, choose the partner built to protect your assets from the ground up. Mortgage Contracting Services, preserving properties, protecting value.

Marvin Stone
Welcome back, everyone. Let’s talk about what’s next, Rich. So, Rich, you talked a little bit about what happened in two thousand eight. We actually have, an employee at Stewart that did not know what happened in two thousand eight while the rest of us, remember remember it quite well. So there’s that. But let’s kinda go back to that time when I think the entire industry just reacted basically and talk about what we’ve done to prepare and where we are today, against that backdrop.

Rich Kugler
Yes. Certainly. So you hit it right on the head that that time was an abrupt inflection point in the market, you know, really a shock to the system. The great financial crisis led to a great real estate impact.

And as a result, Stewart and a number of our other providers in the market and servicers really, really had to react and be reactive for a while, trying to scale up, trying to put the the the manpower and horsepower behind the loan modification process and loss mitigation efforts and default, and really trying to to stay up, stay afloat during that process. Well, we realized that that is that was a gap for Stewart and and that as a title services provider there, we did our best to keep up and we did our best to provide those services. But we definitely identified that there was a need for a more comprehensive view and a more comprehensive offering within the Stewart family.

So we have within Stewart, we’ve spent roughly a billion dollars on acquisition, everything from technology solutions to credit and verification.

We built out additional title capabilities because we knew that there were certain areas we needed more scale and more depth and more expertise. We also built out an appraisal management company through acquisition with with great expertise, not only in origination, but in servicing as well.

And then most recently, we just announced the acquisition of Mortgage Contracting Services, MCS, which is a leading property preservation company based in the Dallas area. And we’re really, really excited about bringing those guys on board. They have tremendous depth in the market, tremendous service levels, and great reputation for working together with servicers to provide those property preservation and asset management services. And we really think that that helps to position us as a better partner for those servicers that are looking for a financially strong and company that is that is really focused on data security, fulfillment, compliance, and making sure we do things the right way. So we’re we’re excited about that because we’ve we’ve done the preparation and we’re we’re ready for what the market brings.

Marvin Stone
Yeah. Exactly. So great. You know, we’ve been end to end for origination for quite some time now, and it that’s just extended now through to default servicing where we really have all those things that a default servicing environment calls for. So, TJ, how you know, kind of add to that, you know, how does this expand or strengthen the capabilities for servicers? We you know, if you’re a mortgage servicing executive, what does this mean to you?

TJ Harrington
So when I think about our relationship in the servicing space, it really is about risk mitigation. That’s really what it is. It title, appraisal, the the asset and inspections, the field services, that home is the asset that secures the debt. And so much of what we do in service of helping that that that market segment is asset protection and risk management.

And MCS really rounds out that offering. It’s the last piece. It’s it’s the piece that actually touches the asset. And it’s part of the disposition strategy.

It’s the protecting of the asset. It’s making it marketable. And we have so much expertise on different portions of it that adding to that, as you said, really makes it end to end. And as a servicing executive, I go, wow.

I have all these these plethora of vendors. I’m doing all these things. It’s it it’s expensive to have multiple vendors vendors. There’s risk of having multiple vendors, whether it be IT risk, whether it be financial risk.

The idea of having a single contract with a publicly traded two point two billion dollar market cap company for all their services end to end provides superior security. And we we even look at what’s happened a few years ago with some of the infosec issues, even more recently with a with a competitor in the market. You know, having someone with the financial strength, the savvy, the technology, being able to provide key services across the life cycle is an incredible value add. And it’s something that’s part of the strategy that we see for large servicers, particularly bank servicers who are so sensitive to those types of risks.

Marvin Stone
Yeah. Great great addition there. And I think one of the things you touched on a little bit is just raw execution is so critical in this space. And that requires scale. It requires stability. You can’t hire that kind of knowledge overnight to handle handle servicing. I think we’ve seen this.

You know, that was part of the reactive nature last time is trying to find people and trying to trying to build systems. I think that whole environment was, largely built on spreadsheets and just people, just raw numbers of people.

TJ Harrington
That’s exactly right. And it’s such a fragmented ecosystem. And I think one of the lessons learned has been having something that is end to end in one place that is combined in a way that makes sense and makes it easier to administer. You just pull out of risk. You make everything easier. You make things less expensive by having kind of that holistic approach.

Marvin Stone
Yeah. For sure. I just wanted to have one sort of takeaway of kind of Stuart’s position in the market, and I know you guys both alluded to it.

But, you know, very often folks in in tie think of Stewart as a title company. But now with MCS, we truly are end to end, and we’ve got all those things that you mentioned. How does it work for TJ, how does it work when someone says, I wanna work with the Stewart product line, the Stewart all those Stewart companies that make up Stewart Lender Services? What’s that conversation like?

TJ Harrington
Yeah. You know, we sit down with executives of all stripes from whether it be large financial institutions, credit union, servicers, and sub servicers. And it’s always such a dramatic conversation because we we present the plethora of companies that are that are under the Stewart brand. And they’re always impressed that we’ve got something that covers nearly every scenario.

And so, really, it’s what can we do to make your life better? Where are there holes? Where can we champion challenger and existing incumbent to make your panel better? You know, really, we solve problems in a way that no other company can. And it’s been impressive, and I think we’ve seen it in the market and just the growth in different market segments, whether it be in originations and home equity, we’re recognized leader or in the servicing space where we’re coming in to challenge some of the incumbents by providing better price service and other benefits.

It’s really been amazing, Marvin. And the answer is, one MSA really covers the whole breadth of the life cycle alone. And to have that happen and to have just one place to go for all the services has been a benefit to the large organizations we service today.

Marvin Stone
Yeah. Rich, I think you say one partner, one agreement. And I think that’s been kind of your mantra for some time now because we can make that happen here at Stewart.

Rich Kugler
No. That’s right. It’s it’s it’s really been a a great journey, and we are on the journey to be the the premier services company. So the investments that we’ve made to acquire best in class companies and then also build in organically best in class capabilities really sets us apart. And we’re really excited to talk to people about that story and about how we can be a better partner for you.

Marvin Stone
Okay. Well, thanks everyone. That was a great episode. So much to share with you, and, we just wanna be your partner as we talk through these things. Hope hopefully, everyone got a lot of information out of it and a lot of insight. Thanks to our guests for being on the show here today, and we’ll see you next time.

That’s it for Stewart in the studio, where mortgage professionals turn for fresh thinking and real world solutions. We’ll see you next time.