RMBS 3.0 investors are turning their attention to service performance in new transactions, following years of difficulties in the mortgage servicing sector, according to Fitch Ratings.
Mortgage servicers have transitioned significantly since the mortgage crisis, most having reduced their bank servicing portfolios and grown their nonbank servicing portfolios. Regulatory directives have driven other changes, the ratings agency said in a release on Monday.
Now, market participants are seeking more focus in servicing, and improvements in incentive alignment, reporting across servicers, access to servicers and more effective arrangements for the reassignment of servicing responsibilities when servicers underperform or are disrupted. Such expectations are higher for loans in new transactions that become delinquent or underperform, Fitch says.
"Fitch believes that certain of these changes could be implemented directly by servicers themselves," it said in a release. "Additionally, some cases might warrant the use of a transaction manager or like entity for oversight purposes."
The oversight of a transaction manager would be of particular value to weaker credit mortgage pools that have higher delinquency rates and transactions that have unrated servicers, or multiple primary servicers.
Many servicers are focusing on their legacy servicing portfolios and regulatory matters, but Fitch thinks there are greater opportunities for their effectiveness that are important in the nascent stage of RMBS 3.0.
The RMBS market is currently working through potential changes to traditional servicing fee arrangements and special servicers for delinquent loans management.
