European Market Tempts Servicing Technology Firms.(Brief Article)

Mortgage servicing costs on a loan-per-year basis appear to be higher in Europe than they are in the United States, creating what some have perceived as an opportunity for creating efficiencies by becoming a third-party servicing and technology provider in the former part of the world.

However, making a go of this business strategy has proven to be a challenging task because, among other things, it has not been "at the peak of priorities" for mortgage market participants in Europe's various countries, said Richard Beidl, an international consultant based in Norwood, Mass. and the president/chief operating officer of Denver-based technology start-up Loangevity.

On the surface, the economics of the strategy look compelling: the cost of servicing in much of Europe has remained "considerably higher" than in the United States, Mr. Beidl said. He said that the servicing cost for the average United Kingdom lender, for example, is over $200 a year per loan while it is below $50 in the U.S. for the top players in the market.

But the cultural and market differences that complicate just about any cross-border business strategy - from language and regulations to reporting and products - make the matter much more complex that it might initially appear. When it comes to third-party servicing processing and automation in many European countries, Mr. Beidl said he can narrow those complications down to about three main ones.

* Customer relationship management approaches differ: Many European market participants will "pay twice as much to service" because they "don't want to give up control." Lending institutions in many countries within Europe use what Mr. Beidl refers to as a relationship banking model in which they offer "one point of contact for all your financial services."

"They're not used to outsourcing things in Europe," he said. "Nobody (has) wanted to give up their loan data."

* Mortgage products differ "significantly": Unlike in the United States, market participants in most countries in Europe are portfolio lenders who customize their products to attract borrowers.