The letter, signed by John A Courson, President and Chief Executive Officer, says servicing is the predominate asset of most mortgage companies and thus it is critical that changes to the current fee structure be done with extreme caution, research, and input from stakeholders.   According to the letter, changes could affect more than just compensation; they also affect counterparty risk, servicing values,rn tax policy, representations and warranties, prepayment speeds, and rights to the asset.  They could also impact the TBA MBS market and ultimately the liquidity of the secondary market for mortgage loans.

Courson urged the agency heads to take deliberate steps to ensure the decision is not rushed, that the industry receives answers to its questions, and has sufficient time to respond and comment. </p

Loan Servicers’ handling of the foreclosure crisis has generated criticism from many quarters including the FDIC Chairman, Federal Reserve Board members, consumer groups, as well as academics. Typical ofrn the criticism were remarks last fall by Federal Reserve Governor Sarah Bloom Raskin. Raskin told a meeting of the National Consumer Law Center that mortgage servicing is an outgrowth of securitization which changed the old model from one where the lender also services a loan to a systemrn where loans owned by many investors are consolidated and serviced by a few companies, some of which are also lenders. This consolidation has led to significant economies of scale in routine matters.</p

In addition to servicing fees, servicers earn money from other fees suchrn as late fees and float interest while streamlining processes to keep costs down, but servicers have been ill-equipped to deal with their new role as loan modifiers. The structural incentives that influence servicers’ actions, especially when they are servicing loans for a thirdrn party, now run counter to the interests of homeowners and investors, Raskin said. A foreclosure almost always costs the investor money but may bring the servicer additional fees while proactive measures to avoidrn foreclosure and minimize investor losses cost the servicer. Loan modification is costly and those costs may not be reimbursed; during forbearance the servicer must still advance payments to the investor. “Even in the case of a servicer who has every best intention of doing the right thing,”incentives are largely misaligned withrn everyone else involved in the transaction, and most certainly the homeowners themselves.“</p

The bottom line: The MBA is asking mortgage and housing regulators to slow their decision making process to allow for the proper exploration of unintended consequences.</p