Time to Voice Your Opposition to the Alternative Mortgage Servicing Fee

As you are probably aware, the Federal Housing Finance Agency (FHFA) is considering proposals to modify the structure of mortgage servicing fees.  There are two current proposals for the structure of servicer compensation outlined in FHFA’s “Alternative Mortgage Servicing Discussion Paper” released on September 27, 2011.
 

Get Involved in the Debate! 

FHFA is requesting public input on these proposals and the comment period expires on December 25, 2011.  MIAC is strongly recommending that you contact FHFA to voice your opinion on this matter.  Written materials may be submitted to FHFA at Servicing_Comp_Public_Comments@fhfa.gov

Also, the Mortgage Bankers Association has drafted a comment letter which contains several key points outlining the primary objections to the Alternative Servicing Fee proposals based on industry feedback.  Please feel free to utilize this sample MBA comment letter as a basis for your individual response to FHFA.  We also encourage you to contact your Congressman regarding this issue.  Your feedback will have a direct impact on the future of your mortgage servicing!

 
Bad News for Small Servicers

In the existing servicing compensation model, servicers retain an economic interest in the performance of the loans they are servicing.  Since non-performing loans are more costly to service than current loans, the servicer is incentivized to reduce the level of delinquencies in order to maximize profits.  Any proposal that compensates a servicer with additional fees for non-performing loans simply doesn’t make sense, since it encourages servicers to allow performance to deteriorate.  Furthermore, a flat fee-for-service model would represent a net decrease in overall servicer compensation and would ultimately cause mortgage servicing to become nothing more than a business requiring massive economies of scale.   The obvious result is that the industry would undergo further consolidation, forcing smaller and medium-sized servicers to exit the business completely.

No Meaningful Benefit

The adoption of the FHFA proposal will have a major impact on the mortgage industry and will dramatically change the economics of servicing residential mortgage loans.  While this may be beneficial for mega-servicers to help them comply with capital requirements under Basel III, it will have a negative effect for all other small and medium-size servicers, and would effectively reduce the role of all servicers to that of a subservicer for Fannie Mae and Freddie Mac.  Modifying the servicing fee structure under the FHFA proposals will cause further consolidation of mortgage servicing rights among the largest servicers, without any other meaningful benefit for the industry as a whole.

More Information

MBA's Press Release – 12/8/2011.

MBA's Comment Letter to FHFA on Servicer Compensation – 12/8/2011.

FHFA’s “Alternative Mortgage Servicing Discussion Paper” - 9/27/2011.

MIAC’s "Alternative Servicing Fee Proposal” - 4/13/2011.

 
A clear majority of Mortgage Bankers Association members believe that the existing servicing fee structure has served the market well for decades and is still a viable option, and that the proposed changes to the structure simply do not make sense. 
 

Now is the time to make your voice heard.

Your trusted advisors,

The MIAC Team