Lower Jumbo Servicing Fee May Not Be a Sign of Things to Come

Fitch Ratings has lowered its minimum servicing fee requirements for fixed-rate, prime credit quality jumbo mortgage loans that are pooled into securities to 20 basis points from a previous minimum of 25 basis points.

But don't expect the rating agencies to engage in across-the-board servicing fee reductions anytime soon.

The servicing fee requirements for MBS backed by prime, short-term, adjustable-rate mortgages remains unchanged at 37.5 basis points.

For prime, hybrid ARMs, the servicing fee is now 20 basis points during the fixed-rate period of the loan, rising to 37.5 basis points when the loan converts to an adjustable rate. Analysts at Fitch said the rating agency only looked at the jumbo mortgage product for this review, and there are no plans to reduce the minimum servicing fees for other products such as alt-A loans, subprime product or high loan-to-value loans.

Analyst Cheryl Glory told MSN that Fitch sees "no impetus to reduce subprime servicing fees."

And with the border between subprime and alt-A becoming "more and more of a gray area," she sees no likely reduction in alt-A servicing fees at this point either.

The lower servicing fee requirement comes in the wake of a Washington Mutual transaction in which the lender sold off excess servicing as part of a jumbo securitization.

"We are comfortable with it for all issuers for that product type," Ms. Glory said.

The substantial economies of scale that some large servicing platforms have achieved allows them to service jumbo loans more efficiently than in the past, she said.

"For most of them, the true cost to service a jumbo loan is probably below 5 basis points," Ms. Glory said. "Going from 25 to 20 is still a substantial multiple above the true actual cost."

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