No Movement on Servicing Fees

Top officials at Fannie Mae and Freddie Mac have expressed their willingness to some industry leaders that they would like to slash the minimum servicing fee but for now it appears that no action is imminent.

Mortgage banking executives, speaking under the condition their names not be used, said the two GSEs understand the rationale for cutting the fee to 12.5 basis points (from 25 basis points) but both are so overwhelmed with fixing their accounting problems while focusing on pending GSE regulatory legislation that a change will not come until their woes are behind them.

"There's no momentum right now from the GSEs," said one veteran mortgage executive.

Meanwhile, the Mortgage Bankers Association has released a new report that says seller/servicers that favor slashing the minimum servicing fee will look to "alternative" measures to help manage their housing receivables if the two GSEs don't make a change.

The report discusses the pros and cons of slashing the fee but MBA notes that among its members there "has been little discussion" about a compromise over the issue.

The trade group's members have varying opinions on whether to cut the minimum. "The debate we have heard has been about two options - a reduction in the fee minimum to 12.5 basis points or maintenance of the 25 basis points status quo - and there has been little discussion of whether any level in between the two would be the right level," MBA says in its report.

The trade group notes that its members' opinions "range in intensity" and that a "substantial minority of companies "have no position at this time."

Among the nation's largest seller/servicers, the bank-owned Wells Fargo Home Mortgage is adamantly opposed to cutting the fee, while Countrywide Home Loans and Washington Mutual favor it.

In February, MBA held a private, members-only forum, on whether the GSEs should cut the minimum servicing fee. It has asked attendees of that meeting not to discuss it with members of the media.

Seller/servicers that favor a cut say they would save millions of dollars a year in hedging costs if more of the servicing "strip" were allowed to be sold into the secondary market.

Those who want to maintain the status quo have cited expensive servicing technology maintenance costs that need to be recouped, loan buy-back concerns and compliance costs, among other reasons.

In its report, MBA notes, "There is more determination on the part of the advocates for change that the large MSRs they are carrying are not sustainable and that they will look to alternative measures, including execution through non-TBA eligible MBS, in order to reduce the MSR levels while otherwise maintaining their business strategies."

The report also says "the preponderance of opinion" is that if the fee is cut it could lead to further industry consolidation. Some proponents of a cut have argued the opposite - that if the minimum is cut more firms might get involved in servicing.

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