Flexibility Is Cornerstone of Alliance's Subservicing Strategy.(Alliance Mortgage Co.)

Alliance Mortgage Co. executive vice president of loan administration, Mike Koster, describes his company's current strategy in subservicing as focused on providing flexible solutions for its key clients "through service level commitments, special default control strategies or accommodating a more complex product menu."

Alliance does not "view subservicing as a commodity," Mr. Koster explains. The full-service mortgage company originates loans in 42 states, servicing over $26 billion in first mortgage loans throughout the country. It's portfolio has grown significantly during the last couple of years despite competition.

"Our current challenges relate to the higher cost structure associated with a heavier prepayment environment," noted Mr. Koster.

As with any owner of MSRs, the executive keeps "a very close watch" on the industry, specifically on "market vs. economic values of MSRs and the risk of misjudging prepayment characteristics of a particular product."

"The past year or so we have leveled out, with a good balance between additions and prepayments," said Mr. Koster.

"High prepayment volumes increase the operational responsibilities (call volume and lien release, most notably), while decreasing the denominator in your unit cost calculation," explained the executive referring to today's challenges in subservicing. "The MBA reported a $6 increase in average unit cost to service in the industry, and I would be surprised if that number doesn't go up again in 2002."

The average "shelf life" of Alliance packaged loans varies by loan type.