Fannie Mae senior vice president of business solution indicatives, Stephen Pawlowski, just published a commentary on his company’s website discussing questions surrounding the transfer and execution of mortgage servicing rights.
Pawlowski, who works in the single-family mortgage division at Fannie Mae, is right to do so, considering all of the MSR activity Fannie Mae is currently engaged in.
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“Servicing of mortgage loans can be an important, valuable component of a lender’s business and we thought it would be helpful to address some of these topics,” Pawlowski writes.
And so he provides four answers to questions lenders are asking right now about the transfer of mortgage servicing rights.
Here is a summary of those answers:
1. How are Mortgage Servicing Rights created?
When a lender originates a mortgage loan, it creates a loan and corresponding obligation and need to service the loan on behalf of the owner of the loan. A lender that sells a loan to Fannie Mae may choose to retain the right to service the loan for Fannie Mae or sell to another Fannie Mae-approved servicer the right to service the loan for Fannie Mae.
The servicer’s rights under the contractual agreement to perform the mortgage servicing duties and obligations and collect the associated servicing fee are commonly referred to as a mortgage servicing right.
If a lender transfers its obligation to service the loan to another servicer, the lender is transferring its “right” to service the loan to the new servicer, but not the ownership interest in the loan, which is retained by Fannie Mae.
2. Who owns the MSR Cash Flows?
When Fannie Mae purchases a loan, it purchases the entire note rate (pass-through rate plus the servicing fee) and agrees to provide the applicable servicing fee back to the servicer.
If a servicer is terminated or if Fannie Mae requires that servicing be transferred, the servicer’s right to receive the servicing fee also is terminated.
3. What is the relationship between Servicer Performance and Servicing Transfers?
While underwriting and eligibility standards help to define the characteristics of loans delivered to Fannie Mae, Fannie Mae believes that the quality of the servicing influences the ongoing performance of a loan.
Under the Mortgage Selling and Servicing Contract, Fannie Mae engages the servicer to manage its assets (mortgage loans) and the associated risks.
If a servicer fails to appropriately service a portfolio of Fannie Mae loans, Fannie Mae may revoke the servicer’s servicing rights without compensation and transfer the portfolio to another servicer or subservicer.
4. What opportunities does Fannie Mae provide for lenders that choose to sell servicing?
Some lenders choose to sell servicing on some or all of their origination volume.
This helps generate operating income/cash flow.
To accommodate the variety of execution options lenders may desire, Fannie Mae offers mandatory and best efforts executions, and also offer a limited number of servicing-released execution options.