In a comment letter filed with the Federal Housing Finance Agency (FHFA) Thursday, the Mortgage Bankers Association (MBA) recommended against taking steps that would reform the compensation structure for servicers.
The association filed the letter in response to the FHFA's ‘Alternative Mortgage Servicing Compensation Discussion Paper,’ a September proposal that the MBA says has the potential to dramatically change not only servicing, but also 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 nonperforming loans, promote market liquidity and enhance opportunities for competition in the origination as well as servicing markets,’ MBA President and CEO David H. Stevens said in a statement. ‘However, we believe that any change to the current servicing compensation model is unnecessary to accomplish these goals.’
While acknowledging that some regulators and stakeholders believe reform is necessary, the MBA said it does not believe proponents of a compensation overhaul have made a compelling case for why the change is necessary. In a statement, the MBA said the current compensation system "has worked well for decades."
‘The world of residential mortgage servicing has undergone unprecedented stress over the course of the economic downturn,’ Stevens added. ‘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.’
If the FHFA decides to move forward with changes to the compensation model, the MBA says it would recommend a "cash reserve structure" that would defer part of the existing servicing fees into a cash reserve, which would be used to cover servicing costs for high-default situations. The MBA and its members developed that model and proposed it to the FHFA this summer.