A growth enterprise: Midland Loan Services boasts a Web-based commercial and multifamily servicing system that is producing significant productivity gains. Midland's Enterprise! is the platform enabling this growth in servicing efficiencies.

Author:Bergsman, Steve
Position:Cover Report: Technology

The folks at Midland Loan Services Inc., Overland Park, Kansas, are feeling pretty good about themselves these days. It's one thing to tout the efficiency benefits of your core servicing system, but it's another to be able to produce the data proving that efficiency. In street parlance, these days Midland not only talks the talk but walks the walk. [??] Midland, a PNC Real Estate Finance company and member of the Pittsburgh-based PNC Financial Services Group Inc., ranks as the country's largest third-party commercial servicer. A year-end 2006 Mortgage Bankers Association (MBA) survey of the largest commercial and multifamily loan servicers ranks Midland as the industry's third-largest overall master and primary servicer of commercial and multifamily loans with $213.4 billion in servicing (22,102 loans). The MBA survey released in early February also found Midland was the third largest commercial/multifamily servicer for life insurance companies and was the leading Fannie Mae and Freddie Mac servicer.

According to company literature, Midland is the only company in the industry with the highest U.S. servicer and special servicer ratings from New York-based ratings agencies Fitch Ratings and Standard & Poor's (S & P).

In October 2003, Midland converted its then-$83 billion commercial real estate mortgage portfolio to its proprietary Enterprise![R] loan management system. The overriding concept of Enterprise! was to integrate loan accounting, servicing, asset management, borrower customer service and investor reporting into a single system. Midland's goal was to improve the management of its commercial mortgage portfolios by increasing the efficiency and capacity of loan-servicing operations.

The important considerations for Midland at the time of conversion was that it was able to consolidate multiple technology platforms and side systems onto a single system; centralize servicing, asset-manage data and documents; standardize user interfaces; move to fully Web-based applications for internal and external users; and integrate desktop applications such as Microsoft[R] Office[TM] suite (Word[R], Excel[R], Access[R]) and Adobe Systems Inc.'s Acrobat[R].

With a three-year operating track record behind it, Midland has been able to chart some performance metrics associated with its adoption of Enterprise!. At the end of 2006, the company reported a total loan-servicing portfolio balance of $223 billion on 24,020 loans, up 170 percent from the end of 2003. Despite the huge addition to its loan-servicing portfolio, Midland reports its servicing head count was up by less than 4 percent.

Some key breakout points from those numbers, as reported by Midland, include: CMBS servicing portfolio balance of $139 billion; institutional servicing portfolio balance of $39 billion; and agency portfolio of $22 billion. Midland is also the named special servicer on portfolio balances exceeding $90 billion.

What's more, employee productivity has soared. The dollar balance serviced per employee has risen 131 percent while the number of loans serviced by each employee has jumped 64 percent.

"The 64 percent is impressive, because loans have been growing larger and more complex," notes David Bodi, Midland's executive vice president for technology and operations services.

Midland reckons over the past three years it has increased operating efficiency by approximately 15 percent. "This is the real bottom line," notes Stacey Berger, Midland's executive vice president of corporate development and strategy. "This is a direct measure of expenses to income, which is essentially how our management team is judged. For each dollar of revenues, we dropped 15 cents more to the bottom line in 2006 than in 2003. It is a very significant amount for a financial servicing operating business."

That's because servicing fees have been dramatically reduced over the last decade through competition, with loan servicing essentially becoming a commodity product. As Berger himself wrote in the July 2005 issue of Mortgage Banking, "providing high-quality service seems like a Sisyphean task for commercial loan servicers."

As a result, many lenders have exited the servicing game, and portfolios have been consolidating. On the technology side, there remain just a handful of players, including Midland; Automated Financial Systems Inc., Exton, Pennsylvania; and EnableUs Inc. (formerly McCracken Financial Software), Billerica, Massachusetts.

In an effort to promote industrywide...

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