Establishing Servicing: What Mortgage Leaders Need to Know
Articles by: Richey May, May 13, 2020
Recently, COVID-19 has caused major changes in the marketplace for mortgage loans. We’ve noticed many of our clients are responding by looking at retaining or establishing servicing for the first time or on a larger scale than they have in the past.
We have many clients that have seller/servicer numbers for the agencies, but have historically sold the loans service released, as this was potentially a better economic position for them when SRPs (Service Release Premiums) were roughly equivalent to the OMSR (Originated Mortgage Servicing Right) they would have recorded.
However, now that the SRPs are below 25 bps (with some clients telling us they are zero or negative in some cases), mortgage companies are looking to establish sub-servicer relationships and start to keep the MSR themselves.
We have assisted multiple clients with the establishment process. We would like to point out some key factors in making this switch and the ways we have assisted our clients as they evaluate their options.
Multiple subservicer options are available.
We commonly assist with selection of a subservicer in conjunction with our subservicer oversight (SSO) services. Embarking on a research process can be time consuming. We can assist you in running an RFP process with a view to industry norms regarding setup and contracting.
Retaining MSRs can have accounting implications.
Retaining MSRs will establish an FMV asset on your balance sheet that you will need to hedge against and must revalue on a periodic basis. Establishing adequate policies and procedures to record and monitor this asset is critical to success and something that we are well versed in doing.
Servicing Oversight and QC controls
You will need new policies and procedures and will be subject to new oversight requirements by the agencies as well as various regulators. We assist our clients in developing control systems that help them focus on key business functions, while adhering to the latest compliance guidelines.
You’ll need a migration plan from your LOS.
We assist clients in developing their migration plan from your LOS to your subservicer. This process can really slow down establishing your servicing portfolio, so it’s critical to get it set up, tested and implemented as quickly as possible.
The Internal Audit function and monitoring oversight functions are required.
Your Internal Audit function is required by the GSEs, as well as serving a myriad of other compliance purposes. It’s common for us to assist clients with establishing this in conjunction with servicing/subservicing. We also commonly assist in developing the subservicing monitoring function, which performs reviews to comply with Fannie Mae and Freddie Mac servicing QC requirements and industry best practices.
Establishing servicing doesn’t have to be a big undertaking, especially in a time that many leaders can see the appeal but may not have the resources to complete a thorough research process. Contact us to learn more about how our team can help you maximize your servicing or subservicing options.