Today’s mortgage lenders face significant operational challenges, particularly when relying on third-party processors for outsourcing services. While potentially streamlining certain tasks, these often come with high costs and can limit lenders’ control over their operations.
Here we explore the complexities and drawbacks of outsourcing, emphasizing the need for direct servicing to maintain control and reduce costs, especially when considering economic pressures such as the threat of new tariffs.
Outsourcing has become a common practice among mortgage lenders, primarily to manage the increasing complexity and volume of tasks associated with escrow services and payment processing. But this reliance on third-party processors can lead to a lack of transparency and flexibility. When lenders outsource these critical functions, they become dependent on the third-party’s systems and processes, which can be problematic for complex tasks where direct oversight is crucial.
Understanding the costs
One of the primary issues with outsourcing is the high cost associated with these services. Third-party processors often charge substantial fees, which can significantly impact the lender’s bottom line. For example, one major player in the outsourcing industry charges between $50 to $80 per mortgage, depending on complexity and location. These costs can accumulate quickly, especially for lenders managing large portfolios.
According to a survey of 2,500 industry professionals from March 2025, 40% of mortgage lenders say rising operational costs represent the biggest challenges they face in managing escrow-related payments for property taxes. Additionally, half of all lenders find the intermediary role of subservicers “very frustrating,” reinforcing the case for more direct control.
“Direct servicing helps lenders reduce costs and maintain control. It also positions them to respond swiftly to market dynamics.”
Another potential drawback is how outsourcing can limit lenders’ control over operations. Once a lender hands over its portfolio to a third-party processor, it loses direct oversight of the process. This lack of control can lead to inefficiencies and errors, as the third-party processor may not have the same level of commitment to the lender’s specific needs and goals. The lender may find it challenging to cancel or modify the outsourcing agreement, further limiting their flexibility.
The dependency on third-party processors also introduces a layer of opacity into the lender’s operations. With outsourcing, lenders may not have full visibility into the processes and systems used by the third-party processor. This lack of transparency can make it difficult for lenders to monitor and manage their operations effectively, leading to potential issues with compliance and customer satisfaction.
No middlemen
Given these challenges, the need for direct servicing without middlemen is increasingly important for mortgage lenders seeking to maintain control and reduce costs. Direct servicing allows lenders to manage operations internally, providing greater transparency and flexibility.
By handling tasks such as escrow services and payment processing in-house, lenders can ensure processes align with specific needs and goals, leading to more efficient and accurate operations. Unlike subservicing, direct servicing enables a one-to-one model tailored to each lender’s internal compliance standards, in which it gains control over how the platform operates within its own “house” rather than relying on an external vendor whose practices may be opaque.
Direct servicing also enables lenders to adapt quickly to changing market conditions. In a volatile economic environment, flexibility is crucial for maintaining profitability and operational efficiency. By managing operations internally, lenders can respond more swiftly to changes in regulations, market trends and customer demands, ensuring competitiveness and resiliency.
This was echoed in the private survey which found that 78.6% of lenders rated an all-in-one platform to streamline escrow tasks as “extremely valuable.” Of those lenders benefitting from direct servicing, the majority (35%) pointed to automation tools as the biggest cost-saving measures implemented for escrow management over the past twelve months.
Remaining agile
This approach can be especially beneficial when considering the pricing and cost threats posed by tariffs, which would increase the cost of imported goods and materials, significantly impacting the mortgage industry. By reducing reliance on expensive third-party services, lenders can better manage expenses and mitigate the financial impact of these tariffs. Direct servicing allows lenders to control costs more effectively, ensuring maintained profitability even while facing economic pressures.
Ultimately, direct servicing offers a strategic advantage for mortgage lenders. By managing operations internally, lenders can maintain greater control, transparency and flexibility, leading to more efficient and accurate processes. This approach not only helps lenders reduce costs but also enables them to adapt quickly to changing market conditions, ensuring that they remain competitive and resilient in a volatile economic environment.
Remaining competitive in today’s business climate is important for mortgage lenders, as the industry is characterized by rapid changes and intense competition. With evolving regulations, fluctuating interest rates and shifting consumer expectations, lenders must be agile and innovative to stay ahead.
Direct servicing helps lenders reduce costs and maintain control. It also positions them to respond swiftly to market dynamics. By leveraging technology and optimizing internal processes, lenders can enhance service offerings, improve customer satisfaction and differentiate themselves from competitors. This proactive approach is essential for sustaining growth, building a strong market presence, and ensuring long-term success in a highly competitive environment.
