FHFA Backing Away from Radical Change on Servicing Compensation

The Federal Housing Finance Agency is preparing to back away from a controversial plan to overhaul the 25 basis point minimum servicing fee paid on Fannie Mae and Freddie loans, after intense, across-the-board industry opposition to the idea.

According to industry advisors who have worked on the issue with FHFA, changing the way servicers are currently paid has now been officially placed on the backburner. “It's DOA,” said one Washington source close to the situation.

It's also understood that a total 'fee for service' compensation model has been scrapped entirely.

“As FHFA has previously noted, considering changes to the structure of mortgage servicing compensation is an important component of improving the operations of the future mortgage market. We received useful input on the discussion paper, and will provide an update on next steps in the near future," said Corinne Russell, Public Affairs Officer. Sources said that the agency's point man on the issue, senior advisor Mario Ugoletti, is expected to discuss FFS/servicing compensation and what may lie ahead in a few weeks at a national servicing conference sponsored by the Mortgage Bankers Association.

In general, servicing advisory firms – companies that hedge, evaluate, and sell MSRs – have fought any radical change to servicing compensation, saying that a 'fee for service' structure would essential remove any “skin the game” servicers currently might have.

Most major servicers opposed any change as well – except Ocwen Financial.

Austin Tilghman, president and CEO of United Capital Markets, Denver, said he could not comment on what FHFA might do, but said “It's good news for the nation. It's good news for home owners.”

Glen Corso, who runs a small trade group, said he has no direct knowledge of what FHFA might do, but called it “great news.”

Tilghman's partner at UCM, David Stephens, noted that with FHFA's apparent change of heart, “We can check off one of the uncertainties in mortgage banking that has been keeping us from moving forward.”

Until a few weeks ago FHFA was still collecting public comments on changing the 25 basis point minimum to one of two models: a fee for service structure, and a 20 basis point payment with a 5 bp reserve fund.

Among other things, the industry was angry with the agency for giving them no guidance whatsoever on what a servicer might earn should a loan go delinquent.