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Taking a hard look at residential mortgage servicing

By: 18 December 2010 2 Comments

The national Mortgage Bankers Association announced this month that it had launched a task force to examine residential mortgage servicing and make recommendations geared toward improving the system.

Why should you care? Because mortgage servicing has a major impact on everything from how much your mortgage payment is to the overall economy. Mortgage servicers have, in fact, been blamed by Fannie Mae and Freddie Mac for the so-called “robo-signing” controversy that led to all those questions about whether foreclosures were being done legally.

Anyone who has taken out a mortgage at one bank and sees that a larger company is collecting payments on it has dealt with a mortgage servicer. The original bank is called the originator and the servicer, of course, is the one that takes over and collects payments on the loan.

While some originators service their mortgages in-house, most choose to turn them over to servicers. The way mortgage servicers do business is one of the reasons mortgage is still relatively easy to get.

One of the things that keeps the credit market viable is the mortgage backed securities market. Servicers generally package up the mortgages for which they are collecting as securities and sell them to investors, thus making it possible to extend credit to more borrowers. Also, the mortgage backed securities market directly influences interest rates.

The mortgage backed securities market, see, is heavily governed by risk. When investing in those securities is deemed safe, both risk and yields are low. Lower yields mean mortgage rates drop, too. When risk and yields increase, mortgage rates are pushed up, too.

Fannie Mae and Freddie Mac – the government sponsored enterprises that back the majority of mortgages in the nation – claimed in testimony before the Senate that servicers handling loans for them should have worked harder to keep people in their homes. Specifically, Fannie and Freddie officials claimed that servicers should have done more than collect money – they should have worked out some ways for people to stay in their homes when they fell behind.

Mortgage servicers, in short, are essential to the way the mortgage market functions. It’s in the best interests of consumers, investors and the overall economy that mortgage servicers are doing their jobs correctly.

And that, folks, is the reason why its important to take a hard look at the way servicers do business. The aforementioned task force – the Council on Residential Mortgage Servicing for the 21st Century – is made up of industry insiders who understand what loan servicing is all about and are in a position to make recommendations that could result in a stronger residential credit system in the nation.

The group will meet on Jan. 19 to discuss the challenges facing mortgage servicers and will meet regularly thereafter to discuss more challenges faced by servicers and, hopefully, come up with recommendations to make the system work better for everyone involved.

Column written by Ethan C. Nobles and distributed to Arkansas publications on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email =

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