Bringing origination and servicing together with AI 

As the pendulum swings back toward a more integrated approach, where origination and servicing will once again work together more cohesively, lenders will view both “sides” differently and start to learn from one another.

4 reasons the house divided

For decades, loan officers, underwriters and processors worked together to guide borrowers through the process of securing a mortgage. The servicing team handled the ongoing management of the loan after closing, including processing payments, managing escrow accounts and dealing with delinquencies. 

The same institution often handled both functions back then, allowing for a more seamless connection between the origination process and the borrower’s ongoing relationship with the lender. However, in the early 2000s, several factors led lenders to see value in separating the two, including:

1. Specialization and efficiency: Companies could focus on their core competencies by decoupling origination from servicing. Originators could concentrate on acquiring and processing new loans, while servicers could focus on the more complex, ongoing management of loans. This specialization allowed each side of the business to optimize its operations and become more efficient.
2. The rise of the secondary market: As the secondary mortgage market grew, with institutions like Fannie Mae and Freddie Mac purchasing more loans from originators, lenders had less need to hold onto and manage loans themselves. This made it more feasible to sell loans to other entities, often leaving the servicing of those loans to third-party companies.
3. Regulatory pressure: The regulatory landscape became more complex following the 2008 financial crisis. Regulators increased scrutiny on loan origination and servicing practices, making it more difficult for lenders to handle both functions in-house. Servicing required a different set of regulatory compliance and reporting measures than origination, which added another layer of complexity to keeping both functions under the same roof.
4. Cost considerations: Separating servicing from origination allowed companies to reduce overhead costs by outsourcing or offloading the servicing function. Additionally, the servicing business model allowed for generating ongoing revenue streams through fees and interest collections, making it an attractive option for companies that didn’t want to invest capital in long-term servicing operations.

The case for reunification

Advances in AI are paving the way for a more coupled environment, with lenders looking to reunite origination and servicing functions using technological innovation.

One key reason for this shift is the ability of modern technology to bridge the gap between origination and servicing. In the past, the lack of real-time data sharing and communication between these two departments made it challenging to maintain a cohesive relationship with the borrower. Today, however, technology allows for seamless data and processes integration across origination and servicing.

AI will play a pivotal role in this transition. For example, AI-powered tools can analyze borrower data to predict future behavior, such as the likelihood of delinquency or early repayment. This allows servicers to proactively reach out to borrowers with customized solutions to prevent default or other issues. On the origination side, these technologies could help lenders better understand borrower needs, predict creditworthiness and offer more targeted loan products.

Furthermore, many manual tasks on both sides of the house have been automated, allowing lenders to operate with leaner staff. Instead of separate teams managing different parts of the mortgage lifecycle, AI can bridge this gap, ensuring that data flows smoothly between origination and servicing departments and that the borrower’s journey is continuously monitored and optimized.

What servicers can learn from originators

As the mortgage industry moves toward integrating the two, servicing can draw several valuable lessons from the origination side. One core principle of successful mortgage origination is being customer-centric.

Loan officers, underwriters and processors work closely with borrowers to understand their needs and provide personalized solutions. In contrast, servicing has often been more transactional and reactive. A borrower might be more likely to experience frustration if they encounter issues, such as missed payments or disputes over escrow accounts, without clear and timely communication from the servicer.

Servicers can learn from the origination process by adopting a more proactive and customer-focused approach, keeping borrowers informed and providing solutions before problems escalate.

In origination, lenders use vast amounts of data to determine the best loan product for a borrower. This data is then used to guide decisions throughout the origination process.

Conversely, servicers have historically been slower in adopting data-driven strategies, focusing more on manual tasks like collecting payments and managing accounts. However, integrating AI and analytics into servicing can allow servicers to better predict borrower behavior and offer more tailored solutions, such as refinancing offers or modifications, when necessary.

Automation in origination has led to faster loan approvals, more accurate underwriting, and improved customer service. Similarly, servicing can benefit from similar automation tools that streamline payment processing, reduce errors and free up resources for more customer-focused activities. AI-driven chatbots, for example, can help servicers manage customer inquiries around the clock, reducing the burden on human staff while providing quicker responses to borrowers.

In a coupled environment, the entire lifecycle of the loan can be managed more seamlessly. Servicing can benefit from closer alignment with origination, ensuring that borrower data flows seamlessly from the moment the loan is originated to the ongoing management of the loan.

This allows servicers to anticipate borrower needs better and offer more personalized services, improving both borrower satisfaction and the long-term health of the loan portfolio.

Ultimately, the goal is not simply to reunite origination and servicing but to create a more holistic and responsive mortgage process that benefits lenders and borrowers alike.

By embracing innovation and focusing on the customer journey from start to finish, the mortgage industry can continue to evolve and meet the demands of a rapidly changing market.

Brad Vasto is the Chief Revenue Officer at Dark Matter Technologies.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected].