Will Fannie Slash Servicing Fee?

Fannie Mae could be moving closer to slashing its minimum servicing fee, industry executives told Mortgage Servicing News.

If Fannie does in fact cut its servicing fee (currently set at 25 basis points), it's expected that Freddie Mac would quickly follow suit.

At press time, both GSEs had declined to comment. However, key players in the mortgage industry - including top seller/servicers and trade group officials - were set to meet here in early February to discuss the issue.

One Midwestern-based Fannie Mae seller/servicer told MSN that there is "serious momentum" at the GSE to slash its minimum fee by one-eighth (13 basis points).

A few months back Countrywide Home Loans CEO Angelo Mozilo publicly called upon the GSEs to reduce the servicing fee.

As Mr. Mozilo and others in the industry have pointed out, the 25-basis-point strip that seller/servicers retain must be capitalized and hedged against, increasing costs for any firm that invests in receivables.

Over the past 36 months the servicing industry has tried to manage through what seems like a never-ending wave of refinancings which have caused "impairment" charges to mushroom.

"That 25 basis points is an asset we have to hedge against," Mr. Mozilo said back in October. "It costs us and the industry hundreds of millions of dollars a year."

At press time, Mr. Mozilo said he had not heard any word in regard to Fannie reducing its servicing fee.

He acknowledged that the industry was planning to meet in Washington this month to take up the issue but would not comment further.

Industry executives say large lenders in general don't want the servicing fee reduced because it makes it harder for new players to enter the business. Countrywide, though, is not one of those large firms that wants the minimum maintained.

Alison Utermohlen, an expert on servicing issues for the Mortgage Bankers Association, this fall said if the servicing fee was reduced to 12 bps, seller/servicers "wouldn't have such a big asset on their books - and they wouldn't have to hedge as much." Two years ago the Government National Mortgage Association reduced the minimum servicing fee on certain securities to 19 basis points.

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