Experts Expound on Mortgage Servicing Rights in the Secondary Market

Government agencies are seeing an increase in participation within the mortgage servicing space and are seeking to provide better insight into some of the new and growing players in the market, a panel of industry representatives told the audience at the ""Mortgage Bankers Association's"":http://www.mortgagebankers.org annual conference and expo in Chicago Tuesday.

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Dave Williams, VP and financial and planning analyst for ""Amerisave Mortgage Corp."":http://www.amerisave.com, said his firm had several reasons to become involved in servicing. To begin with, it provides more independence. ""In order to protect yourself, you want to have as much independence as possible,"" Williams said.

Secondly, Williams said as a servicer, companies gain advantages related to execution, with no time lost working through an additional third-party. And third, it enables Amerisave to retain servicing income. Amerisave doesn't retain all of its servicing, Williams said, adding that maintaining the right balance of retained servicing is key.

""Fannie Mae"":http://www.fanniemae.com has introduced new tools designed to aid servicers, according to Anthony Reed, an SVP with the GSE. ""We have hordes of new applications,"" Reed said. Among them is one that enables sellers to efficiently perform data edits.

In a couple of weeks, Fannie Mae will launch a new portal, which will provide a number of enhancements over the current portal, according to Reed. The GSE has also introduced tools to help lenders recognize which are the acceptable servicers, helping them better evaluate those industry participants that are new to the servicing game and those that are expanding their operations.

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The technology improvements are designed to help move loans along the pipeline much more quickly and help users meet their obligations to their stakeholders, Reed said.

""Ginnie Mae"":http://www.ginniemae.gov has seen large volumes of business move from the top 13 issuers to smaller players in the market, said Michael Drayne, SVP of Ginnie Mae's Office of Issuer and Portfolio Management. The top 13 had 90 percent of the business last year. In the next 18 months, Ginnie Mae expects their volume to grow 10 percent, or $150 billion.

""That would make you think that the business from the top 13 had been about $135 billion (90 percent of $150 billion),"" Drayne said. ""They haven't grown that much, they may have even shrunk. What that means is that there has been a significant change in smaller investors.""

The smaller investors are mortgage bankers moving into this part of the business to earn income from servicing portfolios and new participants in the mortgage market looking to serve as pipeline conduits, Drayne said.

""They present different issues for us,"" Drayne noted. So, Ginnie Mae vets the business plans, business processes, and compliance programs of any company that it is considering working with to ensure that it will meet expectations. That means looking at not just reported financial statements, but also audited financial statements for items including ratio of servicing fees from different sources to protect against over-concentration.

Staffing expertise of business partners is another critical element in evaluating servicing relationships, multiple panel participants said.

The risk profile of servicers is increasing along with the complexity of the business itself, said David Allison, SVP of ""Dovenmuehle Mortgage, Inc."":http://www.dovenmuehle.com/ ""The risk/return ratio has changed more in the last two years that it has in the last 20,"" according to Allison.

Brand quality is the key risk in working with any servicer or subservicer because any poor customer service will reflect negatively on the brand, Allison said, adding that credit management is another critical factor for any business partner.