Newsroom

December 23, 2011

Hunt warns on alternative servicing structures

NAFCU opposes mortgage-compensation structure alternatives that have been proposed by the Federal Housing Finance Agency and urges that the FHFA maintain the "status quo" until Congress finishes its work on housing finance reform, NAFCU told the FHFA yesterday.

Carrie Hunt, NAFCU's general counsel and vice president of regulatory affairs, wrote the FHFA in response to a Sept. 27 discussion paper in which the FHFA proposed two alternatives for mortgage servicing compensation. She said that although the models seek to improve service to borrowers, NAFCU strongly believes this objective would not be accomplished by either one.

Under the first proposed alternative, Fannie Mae and Freddie Mac would pay 12-20 basis points in servicing fees, which Hunt pointed out is lower than the 25 basis points they currently pay. Mortgage servicers would also be required to maintain a reserve account for nonperforming loans. The other alternative would establish a fee-for-service model. Servicing fees would be set at $10 per loan, per month.

"The fees that credit unions receive from servicing are used to cover the costs of doing business," said Hunt. "Should either alternative be adopted, the quality of serving may suffer."

She said both alternatives would unfairly favor large-volume mortgage lenders at the expense of small lenders, such as credit unions. Larger lenders may seek to increase the number of loans they sell in the secondary market in order to compensate for lower fees resulting from either servicing alternative. "By doing so they would increase their already large market share and make it more difficult than it already is for smaller lenders to compete in the mortgage market," Hunt said.

Hunt also reiterated that Congress will likely take action in regard to housing finance in the near future. She urged the FHFA to wait until lawmakers act before restructuring mortgage servicing compensation. However, if the agency deems that changes are necessary before then, she urges that it consider small changes rather than "radical departures from the current structure."