Investors are far from satisfied with the residential mortgage-backed securities industry despite an onslaught of regulations and changes already thrown at the industry.

At least, that's according to an industry report from credit ratings agency, Fitch Ratings,.

“Investors in RMBS 3.0 are seeking further structural improvements in new transactions, including those directed at improving their ability to impact servicer performance,” the report from Fitch states.

Since the financial crisis, most mortgage servicers have already undergone significant transition, to be fair, including reductions in bank servicing portfolios and growth of non-bank servicing portfolios. 

However, Fitch outlined the following 5 recommended changes for mortgage servicers in the private-label mortgage-bond industry.

Consider this a list of bond investor aspirations for mortgage servicing:  

  1. Improved incentive alignment
  2. Better and more consistent reporting across servicers
  3. Improved access to servicers
  4. More effective arrangements for the reassignment of servicing responsibilities in cases of servicer underperformance or disruption
  5. A high degree of servicing focus needs to be placed on any loans in new transactions that become delinquent or underperform.  

For how this should be implemented, while Fitch believes that some of these changes could be implemented directly by servicers themselves, some cases might warrant the use of a transaction manager (TM) or like entity for oversight purposes.

“Fitch believes that such oversight can add particular value with weaker credit mortgage pools with higher rates of delinquency. Additionally, a TM working in tandem with a master servicer could add value to transactions, which have unrated servicers or multiple primary servicers,” the report stated.

And as a result, Fitch stated that it believes those servicers who adopt these recommendations, along with fulfilling all of their other responsibilities, will "have greater success over the longer run."