Paul Olaf Johannsson has over 11 years of industry experience with expansive backgrounds in legal, finance, GSE, and mortgage servicing. Johannsson is now a Senior Default Servicing Manager and VP with BSI Financial Services. He currently oversees a critical and large piece of the enterprise’s foreclosure, bankruptcy, and litigation operations.
Johannsson sat down with DS News to discuss the current trends in default servicing and litigation.
What are the trends you are seeing in the servicing industry right now?
Volatility. I think we're collectively in a somewhat unpredictable environment right now. This is the most volatile I have seen it during my 11+ years so far in the business. From the default legal community’s perspective I'm a bit biased because I was on that side of the business for eight years. I think that default law firms are experiencing what servicers are experiencing because of the market and model outlook instabilities, ongoing regulatory changes, and declining markets with mortgage loan delinquencies. With mortgage loan delinquencies declining it's harder than ever for law firms and servicers alike to profit. I think that as an industry we're trying to come up with creative ways to get the job done cost-effectively and compliantly, while maintaining market share and ensuring that the borrower/client experience is the best that it ever has been.
How do you see the industry shift as we move forward with the declines in default but also the increase in regulation and compliance?
My opinion of what's going to happen is that default law firms are going to diversify their product offerings and expand their footprints. If they choose not to diversify their product offerings and they stick with core default mortgage legal case management in one jurisdiction the default firms are not going to survive unless they are the rock-star of that jurisdiction. Even then, it’s precarious as servicers typically migrate inventory to the best default firms and volume stresses the firms’ abilities to be the best. We then run into a concentration risk. I believe that you're going to see more regional-type partnerships develop in this space and that you're going to see a lot more diversification of default law firm product offerings. I think that the industry already has that memo as default law firm diversification and sustainability seems to be a recurring front and center topic at industry gatherings. We have also seen a lot of movement when it comes to default law firms merging, acquiring, and/or closing over the past 18 months. The same can be said about non-bank mortgage servicers, although I believe the volatility there to be in its early stages.
My opinion is that larger mortgage banking institutions in the servicing space have stated, or their actions have reflected, the desire to partially or wholly offload certain portions of their servicing portfolios. These offloads are due to apparent risk, recent industry backlash, and because of the profitability challenges due to the sometimes burdensome compliance standards. A lot of those servicing pools have now shifted to non-bank mortgage servicers. We have a complete shift there that is still ongoing. We're still seeing trades’ mortgage servicing rights go to these non-bank mortgage servicers. I don't think that the industry has quite adjusted enough nor had the proper time in the current model to adequately forecast where this model is headed. My initial observation is that if the national banking institutions had challenges in the servicing realm than non-bank mortgage servicers are going to have, or have had, many of the same challenges.
Recent events from regulatory agencies and the transparency from those agencies show us that compliance standards are absolutely getting stronger and requiring more business enhancements. I say this with an awareness that we have a new administration incoming and the new administration’s impact to the mortgage servicing and default law communities is to be determined. It will be interesting to see where the administration heads and what impact it will have on the current model of non-bank mortgage servicers dominating mortgage servicing market share. How long we operate under the current model is to be seen and largely depends on non-bank mortgage servicers’ abilities and mortgage banking institutions’ ongoing appetites. Additionally, the upcoming administration change will likely change our current environment drastically.