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(Re)Capture the Flag: Mortgage Edition

This story originally appeared in the November edition of MReport. Access the full article here.

Many of us played Capture the Flag as kids. For those of you who are unfamiliar with the game, it’s an outdoor game with two teams. Each team has a flag (or marker of some kind) and the objective is to capture the other team’s flag, located at their base, before they capture your flag. Some of the players defend their base while others are on the attack to get the other team’s flag. The offensive players on the attack can be tagged and sent back to their home base to start over again. It’s a fun game to play. That is, until trillions of dollars are at stake and those flags are actually consumers in your servicing portfolio and you lose the game five times more often than you win.

Defending one’s portfolio has become the single most important priority for servicers. Michael Nierenberg, Chairman, CEO, and President of New Residential Investment, who services approximately 4 million borrowers, used the word “recapture” six times during their Q2 2020 earnings call on July 22, 2020. It is top-of-mind for every servicer, especially after Rocket (Quicken Loans) released its S-1 in July, which stated a 75% overall retention rate through the first two quarters of 2020, up from 63% in 2019. That’s more than 3.5 times better than the industry average.

Before COVID-19 wreaked havoc and drove down mortgage rates, servicers were recapturing one out of five borrowers with re-finances being easier to recapture than purchases. However, those easier refinance recaptures have become more and more difficult for many servicers as origination volume hits record levels and capacity continues to be an issue. Having too much volume and generating more revenue per funded loan than usual is a great problem to have for the origination side of the business, but it’s when those overseeing the servicing side lose sleep, especially when current borrowers are call-ing in and can’t get anyone on the phone to help them get a lower rate and are forced to seek help elsewhere.