FHFA Backs Away from Servicing Fee: Will It Help?
Now that the Federal Housing Finance Agency is backing away from a controversial plan to overhaul the 25 basis point minimum servicing fee paid on GSE loans, the market is trying to figure out what effect it will have on MSR values.
The other “cloud” hanging over MSR prices (and sales) is the pending robo-signing settlement between the state attorneys general and at least five major servicers.
“It should help values,” said servicing advisor Austin Tilghman of United Capital Markets, Denver, but he admitted that it’s much too early to tell.
The servicing side of the business received unexpectedly good news last week when it was revealed by National Mortgage News that the regulator of Fannie Mae and Freddie Mac planned to scrap a “fee for service” compensation model that would pay lenders just $10 a month for performing loans.
According to industry advisors who have worked on the issue with FHFA, changing the way servicers are currently paid has now been officially placed on the back burner. “It’s DOA,” said one Washington source close to the situation.
The only guidance FHFA would give was this: “As FHFA has previously noted, considering changes to the structure of mortgage servicing compensation is an important component of improving the operations of the future mortgage market. We received useful input on the discussion paper and will provide an update on next steps in the near future.”
The discussion paper in question addressed just two servicing models: fee for service and a 20 basis point payment with a 5 basis point reserve set aside.
The FHFA is expected to make an official announcement on the issue in the coming weeks, perhaps at a servicing show sponsored by the Mortgage Bankers Association.
In general, servicing advisory firms—companies that hedge, evaluate and sell MSRs—have fought any radical change to servicing compensation, saying that a “fee for service” structure would essentially remove any “skin the game” servicers currently might have.
Most major servicers opposed any change as well, except Ocwen Financial.
Tilghman called the FHFA’s change in stance on FFS “good news for the nation. It’s good news for homeowners.”
Tilghman’s partner at UCM, David Stephens, noted that with the FHFA’s apparent change of heart, “We can check off one of the uncertainties in mortgage banking that has been keeping us from moving forward.”
Until a few weeks ago the FHFA was still collecting public comments on changing the 25 basis point minimum.
Among other things, the industry was angry with the agency for giving them no guidance whatsoever on what a servicer might earn should a loan go delinquent.
— Paul Muolo contributed to this story