The Mortgage Bankers Association (MBA) has filed a comment letter with the Federal Housing Finance Agency (FHFA) in response to its "Alternative Mortgage Servicing Compensation Discussion Paper," a September proposal to overhaul the mortgage servicing compensation system that has the potential to dramatically change residential servicing, origination, and secondary market operations.
"MBA appreciates the interest of FHFA in ensuring that we collectively work to improve service to borrowers, reduce financial risk to servicers, ensure flexibility for guarantors to better manage non-performing loans, promote market liquidity and enhance opportunities for competition in the origination as well as servicing markets," said MBA President and Chief Executive Officer David H. Stevens. "However, we believe that any change to the current servicing compensation model is unnecessary to accomplish these goals."
In its comment letter, MBA acknowledges that while some regulators and stakeholders believe that there is a need for change, a compelling case has not been made as to why change is necessary when the current servicer compensation system has worked well for decades.
"The world of residential mortgage servicing has undergone unprecedented stress over the course of the economic downturn," said Stevens. "That being said, the current servicer compensation model is still the best approach and making radical changes, like the proposed 'fee for service,' will have dramatic impacts not just on originators, servicers and investors, but also on borrowers in both the costs they pay to get a mortgage and the support they receive from their servicers."
In the event that FHFA does move forward with changes to the compensation model, MBA's letter recommends a "cash reserve structure" which calls for deferring part of the existing servicing fees as a cash reserve to cover servicing costs for catastrophic economic and default situations. The cash reserve model was developed by MBA and its members over the past six months and was proposed to FHFA this summer.