The Mortgage Bankers Association proposed a new servicing fee structure that would set aside the cash needed to treat nonperforming loans. The Federal Housing Finance Agency, Ginnie Mae and the government-sponsored enterprises began considering a new mortgage servicing fee structure in January. As delinquent loans mounted after the subprime meltdown and the foreclosure pipeline jammed, the existing fee structure could no longer fund the extra work needed. The current model provides a minimum servicing fee of 25 basis points with an assumed guarantee fee of 20 bps and a 5 bps servicing fee the servicer can cash out or hold as a mortgage servicing right. In February, the FHFA released four options under consideration to replace the old system. One structure allows for the servicer to take an unguaranteed interest in the both the principal and interest in lieu of being paid a fee based on the interest strip. The other three models assume minimum servicing fees of 12.5 bps, 3 bps and no minimum servicing fee, which the FHFA dropped as an option, according to the MBA. See graph below for details.

Each structure proposed pays servicers based on performing loans with additional fees for nonperforming ones. The agency would pay servicers a flat dollar amount per month based upon which stage in delinquency the loan was in. But the MBA said the proposals currently under consideration include an increase in the guarantee fees the servicer pays the guarantor. This would cover the separate fee the servicer gets for treating nonperforming mortgages. However, the MBA said under the current proposals, the g-fee would be greater than the actual cost to the agencies. "Thus, MBA’s members fear that the Ginnie Mae, Fannie Mae and Freddie Mac may realize a windfall profit at the expense of servicers," the trade group said. "MBA believes another option is worth considering." The MBA proposal would establish a cash reserve to be used for the future servicing fees of nonperforming loans. On a 5% mortgage, a 5 bps strip of the interest rate would be used to fund the account. If one of the agencies move the servicing rights to another firm, the funds would transfer, too. "Although not a panacea, this structure could result in realizing the Guarantors’ stated objectives, while addressing major concerns MBA’s members have with respect to the proposals discussed so far," the MBA said in a letter to the agencies. Write to Jon Prior. Follow him on Twitter @JonAPrior.