Image Management With An MSR Transaction
Mortgage Servicing Rights (MSR) Transactions are a common event in the lending business. Organizations can rely heavily on MSR purchases to either grow or sustain a large servicing portfolio. The transfer process is complex and requires adequate oversight and management to ensure a successful transition. Each transfer involves borrower communications, data, images, physical assets, and funding. We will focus on document management with the following topics:
- physical vs. electronic assets
- image blobs
- image taxonomy (classification and metadata)
- deal timing
PHYSICAL VS. ELECTRONIC ASSETS:
As the mortgage industry continues to embrace digital transformation, the amount of physical documents being generated continues to decline. In today’s environment, many lenders have documents in both physical and digital formats. During an MSR transfer, it is important to understand the make up of documents within the transaction. The originating lender and the age of the loans will dictate the amount of physical documents within a MSR transaction.
With servicing margins shrinking and budgets under tight scrutiny, having documents in an electronic format is imperative to keep servicing costs at a minimum. If the documents are available in an electronic format, the physical documents can usually remain with the seller, reducing the costs associated with the MSR transaction.
If the MSR transaction contains only physical loan documents, it will likely be more cost effective in the long run to convert the documents to an electronic format. Converting documents at this point will prevent operational bottlenecks later in the loan’s servicing life. As an MSR purchaser it is important to include language in the contract that protects against situations where documents are only in a physical form.
Image Blobs are a common descriptor for specific image files used in the mortgage industry. These are single image files that contain multiple document types (or document labels). The files are usually large in size, sometimes reaching 500+ pages. Blobs are created when a stack of loan documents are all imaged together without any separation. These files can be burdensome for servicers because finding specific information in a large 500+ page document can be time intensive if this is the only location of information. This type of file is very common with origination stacks and post-closing document stacks.
Blobs can be diagnosed relatively easily during the transaction by analyzing loan image samples. The image samples will provide good insight into the frequency and size of common blob files for the seller. It is not uncommon that missing document images are found in the large blob file after an extensive search.
It is recommended for any buyer of MSR’s to request that all blob files be properly separated and classified to ease the burden of finding information later in the servicing life. It is also common that the buyer charges a fee for unorganized images. This fee is used by the new servicer to organize the images, or offset the additional operational cost to work with the unorganized files.
An imaging taxonomy refers to how images are organized and accessible to the servicer. The image taxonomy is a crucial element for running a best-in-class servicing shop. When purchasing assets, the new loan images must be transformed to fit with the purchaser’s imaging taxonomy. As the mortgage industry continues on the digital transformation journey, managing electronic information increases in complexity and importance.