Freddie Mac’s “Servicing Excellence” initiative will be transforming mortgage servicing by addressing industry challenges and enhancing operational efficiency. Diego Sanchez and Mike Reynolds discuss how this new initiative builds on the legacy of Reimagine Servicing®, fostering a culture of innovation and accountability. With a focus on sustainable homeownership, the initiative is set to drive change in the industry, benefiting servicers and shaping the future of mortgage servicing over the next 3-5 years.
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00:00We are live from MBA Servicing.
00:07My guest is Mike Reynolds, who's the VP and head of servicing for Freddie Mac's single
00:13family.
00:14Mike, it's so great to have you on this conversation today.
00:17Thank you, Diego, and thank you, HousingWire, for having me.
00:21So before we dive in, could you briefly introduce yourself and also your role at Freddie Mac?
00:27Sure.
00:28I'm the head of servicing for the single family Freddie Mac business.
00:32I've been in this role for just a little bit over a year.
00:36The prior decade or so, I was running a CRT program for the company.
00:42We raised a lot of private capital to put some protection against credit losses.
00:47And then I'm really a single family GSC generalist.
00:52Prior to that, I've been in other strategic development roles, and I spent about 10 years
00:59developing technology.
01:00Okay.
01:01Oh, interesting.
01:02Very interesting background.
01:03We're dealing with a little noise here.
01:04We are live.
01:05I think they're breaking down lunch at this point.
01:07But Freddie Mac is announcing a new initiative, I believe at this event, called Servicing
01:13Excellence.
01:15Could you tell us a little bit more about that initiative?
01:17Yeah.
01:18So the idea of Servicing Excellence is, as a head of servicing, I've come in.
01:23I've really tried to take a year to understand what priorities we should have moving forward.
01:28Servicing is generally really good, but I wanted to challenge ourselves to be even better.
01:36I want to challenge ourselves to be even better, and all of our servicing partners to be even
01:41better.
01:42Servicing is a very, very active and important business.
01:46Maybe some of your listeners, they're probably very sophisticated, so they understand.
01:51But some may have an impression that, oh, servicing is a little bit of a sleepy business,
01:56kind of an afterthought, and maybe it's something that you got to do because the core part of
02:01the business is originating loans or something to that effect.
02:04And I want to dispel that.
02:06For anybody who's got that mindset, I want to dispel that.
02:10Sure, that may be true for some servicers or some participants.
02:14But largely, servicing's become a very attractive business that has attracted a lot of participants.
02:20It's attracted a lot of capital.
02:23And me, being the head of servicing for the single-family business where we have roughly 13.6
02:28million loans, I'm responsible for the credit outcomes related to that.
02:33So even one bit of credit loss, if you can make a savings, that's very, very significant.
02:39And of course, we have homeowners, right?
02:40We're looking to try to create the best outcomes for those homeowners or at least opportunities in the
02:47times when they hit the stress.
02:48So the concept of servicing excellence is, let's make sure that we are putting as much
02:54as we can on Freddie Mac, and then to be a little more demanding of our servicers to
02:58ask them to do more, and then hope that they're a little more demanding back on us to make
03:02sure that we're delivering whatever it is that their particular business preference
03:06is that we can kind of accommodate their business model.
03:10So servicing excellence builds on a legacy initiative called Reimagining Servicing.
03:19How are you layering on top of that initiative?
03:23So Reimagined Servicing was largely a technology campaign that we launched in 2019, and we
03:31completed it in 2024.
03:34In December 2024, we retired one of our assets called Workout Prospector, and with that,
03:41we accomplished everything that we set out to do with Reimagined Servicing.
03:45That's a very significant effort, and I wanted to make sure folks understood that Freddie
03:51Mac, we're finishers.
03:52We get things done.
03:53We don't just open projects and they go on and on and on.
03:56It's like everything that we set out to do to modernize our servicing infrastructure,
04:01which were very ambitious goals and required significant amount of industry interaction
04:06and support, we got it done.
04:09And so first of all, we want to celebrate mission accomplished in that regard.
04:15Reimagined Servicing has made tremendous benefits in multiple ways that maybe I could talk about
04:21in a second.
04:22And it was also represented a substantial investment on Freddie Mac's part.
04:27Just a lot of dollars that we put into that technology.
04:31That said, with Servicing Excellence, we're building on that foundation.
04:36So the message I want to get out to the industry is, even though we're done with Reimagined
04:40Servicing, that does not mean we're done in our investments that we're putting into servicing.
04:45As I said at the top, the servicing business is critical.
04:49It's very, very important.
04:50It's important to us, a lot of constituents out there.
04:52It's important to our homeowner outcomes.
04:55And so we're going to keep on pouring into that space and making the next level of enhancements
05:01to be prepared for whatever, you know, our current state of the economy and whatever
05:05might come next.
05:06You mentioned earlier asking more of your servicing partners and them asking more of
05:13you.
05:14I imagine there are challenges that you're thinking of when you make that statement.
05:18What do you think are some of the challenges where you're going to ask more of your servicing
05:22partners and you think they're going to ask more of you?
05:25A couple of areas.
05:28Generally speaking, the economy is doing really well, but there's mixed signals.
05:31It's not all one directional.
05:33So some aspects, you look at the economy, it's doing pretty good.
05:36Other aspects of the economy, it shows some weakness.
05:39And so we have to be on top of that.
05:42Again, with 13.6 million loans, a small percentage of a dip of folks going delinquent is a significant
05:51impact financially to the company.
05:53It's a significant impact to those homeowners who may be going through that distress.
05:57So the economy will probably continue to have some type of slowdown.
06:07The expectation on rates and interest rates is they're going to be not as many cuts as
06:12we expected.
06:13That's going to put some pressure on originations and home price appreciation on average.
06:19We're predicting to slow down, our expectations to slow down.
06:23So those are some pressure points.
06:25We'll see what happens with jobs.
06:26Those are some pressure points.
06:27We also are seeing other forms of increased expenses that homeowners have to bear.
06:36And so generally speaking, that's inflation.
06:39You can kind of lump that into the broad inflation and then you can start to cut into more specifics.
06:44Certainly to acquire a house is very challenging from an affordability standpoint.
06:49Even if you're in a house, you may be fortunate enough to have a locked in low rate.
06:53A lot of folks on our book have great rates compared to today's markets, but they may
06:59be having increased insurance premiums or they may be having increased taxes.
07:03There are other aspects if you're in a condo, increased condo fees.
07:07So there's differing pressures that could be mounting on there and just that relationship
07:13of expenses relative to the rise in incomes.
07:17Those are the types of things that we need to continue to manage.
07:20And I think Freddie Mac does a pretty good job managing that.
07:23Everything that we do is through our servicing partners.
07:26We really set policies.
07:27But as I mentioned on the servicing reimagined, we embedded technology into the servicing
07:34shops to better enact the policies and change those policies.
07:39So that's kind of like the real key thing there is, are we collecting the right data?
07:45Are we utilizing that data?
07:47Are we marrying it up with the interactions we have with our servicers and our servicing
07:52partners to be able to be making the right adjustments to our policies to address whatever
07:57the current issue is and the changing issue?
08:00And we are a big national company, so we have to define it on a national level.
08:04But that has to incorporate geographic specific concerns, because some geographies or some
08:12states are going to have slightly different stresses than others.
08:16And so those are all the types of things that we need to balance.
08:20I would imagine that you are booked with a lot of meetings over the next couple of days
08:26with your servicing partners.
08:28What are you going to tell them about servicing excellence in terms of how it's going to impact
08:34their day-to-day and your partnership with them?
08:37The primary consumers of servicing excellence campaign, as I see it, are people who work
08:44at Freddie Mac.
08:45When I'm laying out for the folks at Freddie Mac, I want them to understand how to prioritize
08:53our efforts, where to place our focus, and there's four main pillars to that.
08:57It's be a premier asset manager.
09:00It's to help homeowners.
09:01It's to help servicers.
09:03And then it's to help Team Freddie.
09:05What can we do?
09:06Our employees are extremely valuable to us, and the jobs that we have are good jobs, and
09:12we want those jobs to be made even better on a go-forward basis, and we want to attract
09:16talent coming in.
09:17Now, Diego, specific to servicers, servicers have differing business models.
09:22As I mentioned, there's been a lot of influx of servicers, different shops coming into
09:28the business over the last many years, a lot of capital associated behind that.
09:34But there's been also other servicers who, they're not as interested in holding onto
09:40that servicing book.
09:41Frankly, they'd rather just be more on the origination side, and then they want to transfer
09:47that servicing to somebody else.
09:48Or if they have a servicing book, they really want to be good at performing loan servicing,
09:53which is the vast majority of our book, 99.5%, roughly.
09:58But when the loan goes delinquent or seriously delinquent, they really don't want to be in
10:03that space, because it's a huge, huge investment that you have to have to be that space and
10:06to do that well at scale.
10:08And so, okay, we can give options for them to transfer.
10:11So really, my message out to servicers is a couple of things.
10:15One, as I said at the top, we've finished reimagined servicing, but Freddie Mac is committed
10:20to improving the servicing industry.
10:23Collectively, we want to improve the way servicing operates.
10:26We want to see how we can drive down costs, pull down costs.
10:30And then two, our commitment is the Freddie Mac team, we need to understand that service's
10:36particular needs, each and every service's particular needs, to say, okay, let's make
10:41sure that we're working with you in the business construct that you need.
10:45And then let's make the technology investments to help further whatever those particular
10:49goals are.
10:50You know, we've seen a trend at HousingWire, and you refer to this a little bit, some servicers
10:56are amassing a pretty big book of servicing rates.
11:00I think Mr. Cooper is up to one and a half trillion or even more now with a recent acquisition.
11:08So that's a trend.
11:09What are some of the other trends that you're seeing come to fruition over the next two
11:14to five years?
11:17So you know, I want to, firstly, you had mentioned Mr. Cooper.
11:20I want to give a shout out there, a Sharper winner for us.
11:23Sharper is an annual awards program where we recognize the top performing servicers
11:28in various categories.
11:30We'll be handing Mr. Cooper some hardware later on today.
11:34And so a lot of servicing is a scale business.
11:39It's a scale business.
11:40And so if you have a big infrastructure, the marginal cost to take on that next loan diminishes
11:46as your scale increases.
11:49And you know, managing a delinquent loan, and that's for performing, that's for performing
11:54loans.
11:55But as a loan goes delinquent and deeply delinquent, and you know, you're trying to deliver these
12:00various solutions or opportunities for the homeowners to stay or exit.
12:05That's very much hands on, resource intense type of program.
12:11So I think there's a lot of, it makes sense for some services to really try to grow that
12:16aggregate scale and really take advantage of those economies of being really large.
12:22But even so, you got to make sure you have that robust default management process.
12:28And so what we do at Freddie is we have numerous ways, one of the easiest ways to explain in
12:35this type of format is we have a we have a scorecard, we have a we have a we have a scorecard,
12:40that scorecard drives this, this Sharper award that I described.
12:45And so that scorecard will go in and assess the servicers performance, you know, at every
12:53stage of the delinquency, basically.
12:56So okay, you had a lot of loans that were current, all right, now how many went to D
13:0030?
13:01They felt 30 behind.
13:02Okay, now you have loans that were D 30.
13:03How many of those fell to D 60?
13:04Okay, and then as you go deeper and deeper, you know, did you get did you get that loan
13:09modified?
13:10Did you apply our loss mid waterfall?
13:12So we're asking servicers to keep on doing what you've been doing.
13:17But now at least this year, we're saying, hey, put a little bit more attention in those
13:20early stage.
13:21The general concept for Freddie Mac is as soon as that loan goes D 30, we're incurring
13:27some type of expense, we're incurring some type of expense, that expense increases significantly
13:33as the loan goes deeper and deeper into delinquency.
13:36And so you know, from a from a premier asset manager perspective, which is what we aspire
13:40to be, we're saying, look, let's minimize that expense as much as possible intervene
13:46as much as possible.
13:48It's also good for the homeowner, the probability of that homeowner having to exit the property
13:56will increase as they go deeper and deeper and deeper.
13:58So we're saying, okay, try to put a little more effort in early stage.
14:02And you know, we've always done that.
14:05But we're just we're just tweaking it a little bit, we're putting a little more emphasis
14:08on it.
14:09And we're saying, hey, look, don't don't let that good borrower who could maybe maybe be
14:15addressed with just a payment deferral of a four, you know, four months, whatever, whatever
14:19it may be, try to do that right away versus waiting till it's deeper and fixing it then.
14:23And so that's the that's the first part.
14:26The second broader theme over the next several years is Freddie Mac has evolved over time
14:34since our creation back in the 70s, being highly dependent upon the servicers.
14:40And we only collect so much data, we kind of collect as much data as we think we need
14:45at that point in time.
14:47And always balancing that with the cost to be able to collect that data.
14:53Now as technology improves, as data storage becomes cheaper and cheaper, there is an opportunity
15:00for us to kind of collect more data.
15:02But that's not free.
15:03So we got to be very careful as we go through this process and interact with servicers.
15:08But this this, again, there's probably some emerging risks that we only are getting partial
15:14insight on.
15:16And we need to, we need to eliminate that blind spot and get a little more insight.
15:20So you know, I mentioned like insurance costs are increasing, we currently only get partial
15:26insight on that.
15:27And so we've got that might be one area where we say, okay, we have to work with you to
15:30go deeper and deeper on that.
15:32And there's probably other areas like that, where as technology improves, and the data
15:39that you're collecting, which translates to the data that you train your models with,
15:45we want to make sure that whatever changes occur, change is always happening, that we're
15:52updating our models and our policies and our strategies to accommodate the current situations.
15:58Mike, this has been a really interesting conversation.
16:02Thank you so much.
16:03Thank you, Diego.