Fitch: Higher Expectations for Servicers in U.S. RMBS 3.0

NEW YORK--(BUSINESS WIRE)-- Successive years of difficulties in the mortgage servicing sector have prompted a call for change among new-issue U.S. RMBS market participants, according to Fitch Ratings.

Most mortgage servicers have undergone significant transition since the mortgage crisis, including reductions in bank servicing portfolios and growth of non-bank servicing portfolios. Other changes have been driven by regulatory directives. Investors in RMBS 3.0 are seeking further structural improvements in new transactions, including those directed at improving their ability to impact servicer performance.

Changes being sought by the market include improved incentive alignment, better and more consistent reporting across servicers, improved access to servicers, and more effective arrangements for the reassignment of servicing responsibilities in cases of servicer underperformance or disruption. Market participants also expect that a high degree of servicing focus will be placed on any loans in new transactions that become delinquent or underperform. Fitch believes that certain of these changes could be implemented directly by servicers themselves. Additionally, some cases might warrant the use of a transaction manager (TM) or like entity for oversight purposes.

In concept, a TM taking on a deal supervisory role would be empowered to direct actions, including those involving the servicers, for the benefit of investors. The manager would seek to hold servicers accountable for not meeting the terms and conditions specified in detail in new transaction Pooling and Servicing Agreements, which might include termination. This would likely mean a high degree of operational and data integration between the RMBS servicer and the TM. Fitch believes that such oversight can add particular value with weaker credit mortgage pools with higher rates of delinquency. Additionally, a TM working in tandem with a master servicer could add value to transactions which have unrated servicers or multiple primary servicers.

While many servicers remain focused on their legacy servicing portfolios and regulatory matters, Fitch believes that opportunities currently exist for improvements in servicer effectiveness. Additionally, these improvements could be important in the current nascent stage of RMBS 3.0. As the RMBS market contemplates continued change, many servicer-related issues continue to be worked through. These include potential changes to traditional servicing fee arrangements and the use of special servicers for the management of delinquent loans. In general however, Fitch believes that those servicers that are able to evidence an ability to respond to the heightened investor expectations while fulfilling all of their servicing responsibilities and requirements will have greater success over the longer run.

Fitch will continue to monitor these developments and their impact on U.S. RMBS transactions.

Additional information is available on www.fitchratings.com.

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Fitch Ratings
Roelof Slump
Managing Director
+1-212-908-0705
Fitch Ratings, Inc., 33 Whitehall Street, New York, NY, 10004
or
Michael Laidlaw
Director
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Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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