Servion Mortgage Newsletter - October 2023

OCTOBER 2023

NEWS LETTER Features Partner Updates Servion Servicing Transition Update The Cost of Quality in Mortgage Lending and Servicing Highlights from the Servion Lending Conference The Buzz

SERVION

Partner Updates JULY - OCTOBER

New Partners

We are thrilled to announce the addition of our new partners, as well as recognize our existing partners who are expanding their mortgage channels to better cater to their borrowers’ needs.

Aspen Federal Credit Union - Rapid City, SD Community Choice Credit Union - Johnston, IA First Security Bank Hendricks – Hendricks, MN Landmark Credit Union – Brookfield, WI Mayo Employees Federal Credit Union - Rochester, MN SAFE Credit Union – Folsom, CA

Partner Expansions Altra Federal Credit Union Added DELEGATED FHA/VA Ascent Federal Credit Union They are a current QC partner, but a new Correspondent Mortgage partner BFF Lending Services Added WHOLESALE – Conventional, FHA, VA

LEARN MORE

Wings Financial Credit Union Added Wholesale FHA & VA

Update SERVION SERVICING TRANSITION

SYSTEM TRANSITION PROGRESS We are pleased to report that our system update has been progressing well. Members are becoming more comfortable with the new system, resulting in more frequent and efficient payment processing.

DURING THIS TRANSITION PERIOD We want to assure you that members who have had payment delays as a result of the new registration process will not be charged any fees or be reported to the credit bureau. Any fees that may have been assessed as a result of registration errors will be waived.

Should any of your members encounter issues or require assistance during this transition, we encourage them to reach out to our dedicated support team at ServionServicing@MyServion.com or by calling 1-800-766-5626.

THANK YOU FOR YOUR UNDERSTANDING AND CONTINUED PARTNERSHIP. WE REMAIN DEDICATED TO PROVIDING YOU WITH THE HIGHEST LEVEL OF SERVICE AND DATA ACCURACY.

THE COST OF QUALITY (COQ) IN MORTGAGE LENDING AND SERVICING

Brock Miller Quality Control Manager Servion Quality Control

The mortgage industry demands strict quality control processes to ensure compliance with regulations and guidelines. The cost of quality (COQ) principle is a widely used concept that improves the quality of services while minimizing costs. Mortgage Quality Control (QC) aims to prevent errors, omissions, and non-compliance issues in loan origination and servicing. The COQ principle includes costs associated with both good and bad quality, which can be categorized into prevention and appraisal costs, and internal and external failure costs.

Prevention costs are the costs associated with preventing defects from occurring in the first place. These costs can include quality planning, training, and process improvement. Appraisal costs are the costs associated with detecting defects after they have occurred. These costs can include inspection, testing, and monitoring.

Internal failure costs are the costs associated with defects that are caught before they reach the customer. These costs can include rework, scrap, and re-inspection.

External failure costs are the costs associated with defects that are not caught before they reach the customer. These costs can include warranty claims, product returns, and lost business.

THE COQ PRINCIPLE IS APPLICABLE IN THE MORTGAGE INDUSTRY FOR BOTH THE ORIGINATION AND SERVICING PROCESSES. Prevention costs include quality planning, process improvement initiatives, and employee training. Appraisal costs include quality control checks to ensure loans meet regulatory and investor requirements. Internal failure costs arise from rework and correcting errors, while external failure costs include penalties, loss of investor and borrower confidence, and investor repurchase demands.

MORTGAGE QUALITY CONTROL (QC) Mortgage lenders can reduce costs and enhance borrower satisfaction by implementing robust quality control processes.

Early detection and correction of defects can lower downstream errors and costs, and training programs for loan originators and processors can reduce errors in the origination process. By using mortgage quality control as a tool for continuous improvement, lenders can eliminate defects and improve their standing with investors, regulators, and borrowers, leading to more business opportunities and increased profitability.

CONCLUSION

Learn More Click the TV screen to meet Brock Miller, Servion’s Quality Control Manager!

More about Quality Control

The COQ principle in quality management helps mortgage lenders and servicers identify areas for improvement, minimize costs, and improve service quality. Mortgage quality control is a critical tool in minimizing COQ by identifying and rectifying errors early in the lending process, improving profitability while delivering high-quality services to customers.

EVOLVE. ADAPT. THRIVE.

HIGHLIGHTS FROM THE SERVION LENDING CONFERENCE SEPT 18-20 2023 AT THE ST. PAUL HOTEL

"The Servion Lending Conference is a great opportunity to network with industry peers and gain insights that you might not otherwise have. As a new commercial lender, I learned so much about my new industry and made valuable connections. Thanks, Servion!" - Conference Attendee

We hosted our annual lending conference from September 18th to the 20th and what a fantastic three days it was! The event was filled with remarkable speakers, invaluable networking opportunities, and plenty of enjoyment. A heartfelt thank you to everyone who attended this year.

We hope to see you again next year! The 2024 conference dates will be announced soon!

The following articles provide insights on thought-provoking topics from three keynote speakers at this year's conference.

U.S. MACRO AND HOUSING OUTLOOK Leonidas Mourelatos

Director of Real Estate Economics Arch Capital Group.

Leonidas provided Lending Conference attendees with a compelling look at the U.S. Macro and Housing Outlook. He discussed the five key questions impacting the industry.

IS THIS THE NEW NORMAL FOR MORTGAGE RATES? Mortgage rates remain at a 22-year high, but they are certain to go down.

Market expectations are calling for cuts to begin in 2024 and so far, Leonidas said, it looks like inflation is behaving.

WHY IS THE HOUSING MARKET SO TIGHT? DID THE RECESSION GET CANCELED? Despite previous forecasts, economists are now pushing their prediction for the recession to start in the second quarter of 2024, but we could start seeing signs of a recession as early as October 2023

Leonidas says the market is still tighter than pre-pandemic because the low supply of houses just can’t meet even the current demand. Many sellers are increasingly deciding to stay in their homes instead of moving.

ARE CONSUMERS TAPPED OUT?

WILL RESUMPTION OF STUDENT LOAN PAYMENTS IMPACT THE MARKET?

Data shows that the labor market is normalizing. While job growth has slowed, it has not collapsed. Real disposable incomes are rising as well, and data does not indicate that households have run out of savings.

While Housing Economists say resumption of student loan payments will likely significantly affect Mortgage Affordability, it is unlikely to have a significant impact Mortgage Delinquency.

HOW CREDIT UNIONS CAN WIN THE BATTLE FOR BUSINESS DEPOSITS We continue to see unprecedented interest rate increases as the Fed responds aggressively to inflation, with borrowing costs at the highest levels in 22 years.

Von Hawthorne Chief Operating Officer Tru Treasury

Von Hawthorne discussed liquidity in lending at the Servion Lending Conference. The goal of Von’s session was to help attendees learn more about the economics of what’s happening in the market and how they can “win the battle” for more business deposits.

ECONOMIC IMPACT ON CREDIT UNION’S COST OF FUNDS As inflation surged in 2022, the Federal Reserve implemented quantitative easings that would put pressure on the price of goods and services. It also raised the interest rate paid on reserve balances hoping to further reduce excess spending, drive down demand for goods and curb inflation.

THE IMPORTANCE OF BUSINESS DEPOSITS Rising interest rates impact deposits and the cost of deposits is rising. On a macro level, credit unions have lower checking account balances than they have in the past because customers are moving their money to other places like CDs, which have a better rate of return. CDs now make up almost 22% of all credit union deposits – up nearly 13% since June 2022. That’s a problem for credit unions, because of the higher cost of funds. So, what can credit unions do to provide better overall rates for customers? Von said the answer is to improve business deposit value.

THREE STRATEGIES TO WIN BUSINESS DEPOSITS Deposits are the lifeblood of a credit union. Von suggests three strategies for improving deposits:

Double down on business deposits.

Credit unions should not allow business customers to do loan-only deals. Requiring deposits or other ancillary business will significantly help drive up the value of business deposits.

Make deposits a condition of credit.

Understanding that getting more commercial deposits is a pain point for many credit unions, make deposits a condition of securing credit.

Support business owners.

Data from the Federal Reserve Bank Small Business Credit Survey indicates only 8% of small businesses are applying for loans from credit unions. Credit unions should be prepared to treat these customers like gold and support them by offering a full suite of lending products like lines of credit, SBA loans, term loans and CRE loans.

The role of treasury management: Credit unions can support the customers’ needs through treasury services like automation of cash flows, fraud prevention, operational efficiencies and optimized return on cash.

A SURVIVORS’ GUIDE TO SUCCEEDING IN TODAY’S MORTGAGE BUSINESS

Sue Woodard Senior Advisor, STRATMOR Group

Sue is a mortgage industry veteran, professional speaker, CEO and self-described adventurist. She has sky-dived over Vegas, fire walked on hot coals, cage dived with great white sharks and is currently training to run a half marathon. It was no surprise to learn Sue is a fan of survival TV shows like Naked and Afraid, Survivor and Alone.

DURING HER TALK, SUE DREW SEVERAL PARALLELS BETWEEN SURVIVAL SHOWS AND THE CHALLENGING TIME WE ARE EXPERIENCING IN THE MORTGAGE BUSINESS.

1. Take Time to Intentionally S.T.O.P.

S

Stop and Stay Calm. Don’t make the situation worse by panicking.

Contestants on survival shows are dropped into difficult and challenging physical circumstances, just like mortgage industry professionals were dropped into unexpected and challenging terrain after the refinance boom.

T

Think and Take a Breath.

Evaluate your situation.

O

Observe and Own. Don’t point fingers. Accept where you are.

While the mortgage industry is contracting, Sue said the people who take action can be successful by following The Seven Essential Elements for Survival:

P

Prepare to Proceed. Now is the time to move to the next step.

Sue Woodard

The Seven Essential Elements for Survival

Pick a few people who don’t think the same as you and who will challenge you.

Ensure your team is clear on your goals and communicates well. Your team should have your back and be trustworthy.

2. Have a Clear, Written Plan Where are you right now?

Where do you want to be?

What do you want to accomplish?

Servion Mortgage, for example, is designed to provide community financial institutions with the tools and support they need to tailor mortgage lending programs to the current environment.

How will you get there?

3. Make Sure Your Team is Solid and Aligned No one succeeds alone. You need a team. A team can be people you work with, referral partners, and family and friends.

Sue suggests putting together a board of advisors consisting of 3-5 people.

6. Have the Mindset of a Survivor It’s not the strongest people who survive, it’s the most adaptable to change who survive.

Set clear goals and write them down. Writing your plans is scientifically proven to be more successful.

Develop an action plan and build in accountability. Accept that things don’t always go according to plan. Pursue progress not perfection.

Prioritize your health (physical, mental, spiritual), finances, and relationships.

4. Have the Tools and Knowledge You Need to Succeed

Optimism is a survival skill. So is grit, consistency, gratitude.

Keeping clients optimistic is the most important thing you can do. Don’t go down the negative road; that doesn’t help anybody.

Evaluate and re-evaluate the tools you have access to and what they can do for you.

Evaluate gaps, research and learn. Credit unions and community banks around the country partner with Servion to gain access to diverse and competitive mortgage options that meet the needs of both the institutions and the borrowers.

5. Take Care of Yourself Taking care of yourself is a survival skill. It’s been tough over the last few years. We went from running a marathon to running a new race, with no break.

7. Take Action for Your Business Sue did a secret shopping exercise reaching out to mortgage loan officers in the Twin Cities – and it wasn’t a great experience. Many didn’t even follow up with her, despite the current economy.

The bar is low. Developing your plan and taking action will set you apart.

THE

BUZZ

Here’s what people are saying about us!

I would like to take a moment and thank you for your patience and persistence. I'm a homeowner now and it's because of your efforts.

I honestly have NOTHING but good things to say about (Servion employee). She always works SO HARD to help me with situations that pop up. I feel she really does go above and beyond.

I was really stressed about this budgeting as though we were in a thriving market. (Servion employee) really did a lot of leg work and research for me. He made it super painless and easy and I am so grateful for that!

SERVICE SOLUTIONS SUCCESS 651-631-3111 • myservion.com Like working with Servion? Leave us a google review!

Servion, Inc. NMLS #1037. Equal Housing Lender.