status: draft
Servicer selection
Servicing quality directly affects non-agency RMBS performance. The right servicer maintains borrower relationships, manages delinquencies effectively, and executes loss mitigation when needed. The wrong servicer can turn manageable delinquencies into losses through poor communication, delayed action, or inadequate borrower support.
Servicing economics
Fee structures
| Service Level | Fee (bps of UPB) | Typical For |
|---|
| Performing servicing | 15-25 bps | Prime jumbo, performing non-QM |
| Non-QM servicing | 20-30 bps | Bank statement, DSCR |
| Sub-performing servicing | 25-40 bps | Early delinquency, workout |
| Special servicing | 40-75 bps | RPL, active modification |
| NPL servicing | 75-150 bps | Workout, foreclosure management |
Illustrative pricing. See pricing disclaimer.
Fee components
| Component | Description |
|---|
| Base servicing fee | Monthly fee for routine servicing |
| Delinquent servicing fee | Additional fee for 60+ DPD loans |
| Modification fee | One-time fee for successful modification |
| Foreclosure fee | Fee for managing foreclosure process |
| REO fee | Fee for managing owned property |
| Ancillary fees | Late fees, payoff fees (often retained by servicer) |
Economics by portfolio type
| Portfolio Type | Base Fee | Delinquent Add-On | Modification Fee | Total Cost |
|---|
| Prime jumbo | 15-20 bps | +5-10 bps | $500-1,000 | Low |
| Performing non-QM | 20-25 bps | +10-15 bps | $750-1,500 | Moderate |
| DSCR | 20-25 bps | +10-15 bps | $750-1,500 | Moderate |
| RPL | 30-40 bps | Included | $1,000-2,000 | Moderate-High |
| NPL | 75-150 bps | Included | $1,500-3,000 | High |
status: draft
Servicer types
Primary servicers
Handle day-to-day servicing for performing loans: payment collection, escrow management, customer service, investor reporting.
Key capabilities:
- Payment processing and allocation
- Escrow administration (taxes, insurance)
- Customer service (borrower inquiries)
- Investor reporting (monthly tape, remittances)
- Early delinquency management (30-60 DPD)
Special servicers
Take over when loans become seriously delinquent or need modification. Have workout expertise that primary servicers may lack.
Key capabilities:
- Loss mitigation (modification, forbearance)
- Foreclosure management
- REO management and disposition
- Borrower negotiation
- Legal process management
Named vs interim servicing
| Type | Description | When Used |
|---|
| Named servicer | Designated for life of deal | Standard for securitizations |
| Interim servicer | Temporary while transitioning | Acquisitions, servicer transfers |
| Backup servicer | Steps in if primary fails | Rated transactions, investor requirement |
status: draft
What to evaluate
Operational capabilities
| Capability | What to Assess |
|---|
| Systems | LOS integration, borrower portal, reporting |
| Scalability | Can they handle your volume growth? |
| Product expertise | Do they understand non-QM, DSCR, RPL? |
| Geography | Coverage in your origination states |
| Languages | Spanish, other languages for borrower communication |
| Hours | Customer service availability |
| Metric | Benchmark |
|---|
| Delinquency rate (performing portfolios) | Compare to peers by product |
| Roll rate (30 to 60, 60 to 90) | Lower is better |
| Modification success rate | 60%+ for engaged borrowers |
| Foreclosure timeline | Within state-specific expectations |
| REO disposition time | 90-120 days post-foreclosure |
| Customer complaints | Low complaint rate, resolution speed |
Financial stability
| Factor | Why It Matters |
|---|
| Net worth | Can they absorb operational issues? |
| Advancing capacity | Do they have liquidity for principal and interest advances? |
| Insurance coverage | E&O, fidelity bond |
| Audit history | Clean audits, no material findings |
| Regulatory status | Licensed in relevant states, no enforcement actions |
Technology
| System | Importance |
|---|
| Loan servicing system | Core platform (Black Knight, ICE, Sagent) |
| Borrower portal | Self-service reduces call volume |
| Reporting | Investor reporting accuracy and timeliness |
| Imaging | Document access and retention |
| Workflow | Delinquency management automation |
status: draft
Special servicing considerations
For RPL and NPL portfolios, special servicing capabilities are critical.
Loss mitigation expertise
| Capability | What to Evaluate |
|---|
| Modification underwriting | Can they re-underwrite borrowers effectively? |
| Workout waterfall | Do they follow investor guidelines? |
| Borrower outreach | Contact frequency, communication quality |
| Timeline management | Do they meet modification deadlines? |
| Documentation | Are modifications properly executed? |
Foreclosure management
| Factor | Consideration |
|---|
| Attorney network | Quality, cost, state coverage |
| Timeline tracking | Meeting state-specific benchmarks |
| Contested foreclosure | Experience with borrower defenses |
| Bankruptcy coordination | Managing loans in BK |
| Title clearing | Resolving title issues pre-sale |
REO management
| Capability | Why It Matters |
|---|
| Property preservation | Securing, maintaining vacant properties |
| Broker network | Quality listing agents |
| Pricing strategy | Market-appropriate listing prices |
| Disposition timeline | Minimizing holding costs |
| Eviction management | Removing occupants when needed |
status: draft
Servicing transfers
When transfers occur
| Scenario | Trigger |
|---|
| Whole loan sale | Buyer has different servicer |
| Securitization | Deal requires named servicer |
| Servicer failure | Primary servicer exits business |
| Performance issues | Investor triggers transfer |
| Regulatory action | Consent order, license revocation |
Transfer process
| Phase | Timeline | Activities |
|---|
| Planning | 30-60 days pre-transfer | Data mapping, document inventory |
| Notification | 15-30 days pre-transfer | Borrower notices, investor notices |
| Data transfer | 7-14 days pre-transfer | Loan tape, documents, images |
| Go-live | Transfer date | Payment processing switches |
| Parallel run | 30-60 days post-transfer | Verify data, resolve exceptions |
Transfer risks
| Risk | Mitigation |
|---|
| Data loss | Complete data mapping, verification |
| Payment disruption | Clear borrower communication |
| Document access | Confirm document delivery |
| Escrow issues | Reconcile escrow accounts |
| Delinquency spike | Enhanced borrower outreach |
Transfer costs
| Cost Component | Typical Range |
|---|
| Boarding fee | $50-150 per loan |
| Document retrieval | $25-75 per loan |
| Data conversion | $5,000-25,000 flat fee |
| Parallel run costs | $10-30 per loan |
| Borrower notification | $5-10 per loan |
status: draft
Servicing agreements
Key terms to negotiate
| Term | Consideration |
|---|
| Fee structure | All-in vs component pricing |
| Advancing | P&I, T&I, corporate advances |
| Performance standards | SLAs with consequences |
| Reporting | Format, frequency, content |
| Subservicing | Permitted or prohibited |
| Termination | For-cause vs convenience |
| Successor servicing | Transition obligations |
Advancing
| Advance Type | Description | Recovery |
|---|
| P&I advance | Principal and interest to investor | From borrower or liquidation |
| T&I advance | Property taxes, insurance | From borrower or liquidation |
| Corporate advance | Legal fees, property preservation | From liquidation proceeds |
Advancing limits: Most servicing agreements cap advancing at some percentage of property value (typically 100-120% of estimated property value) to prevent over-advancing on deeply underwater loans.
| Standard | Typical SLA |
|---|
| Payment processing | Within 2 business days of receipt |
| Investor reporting | By 10th of month |
| Delinquency contact | Within 15 days of 30 DPD |
| Modification decision | Within 30 days of complete package |
| Foreclosure referral | Within 30 days of trigger |
status: draft
Red flags
Operational red flags
| Red Flag | Concern |
|---|
| High staff turnover | Training gaps, service quality |
| System migration in progress | Transition risk |
| Rapid portfolio growth | Capacity strain |
| Multiple platform versions | Integration issues |
| Outdated technology | Efficiency problems |
| Red Flag | Concern |
|---|
| Delinquency above peer | Portfolio or servicer issue? |
| High roll rates | Not catching early delinquency |
| Long foreclosure timelines | Process inefficiency |
| Customer complaints | Service quality |
| Regulatory issues | Compliance failures |
Financial red flags
| Red Flag | Concern |
|---|
| Declining financials | Stability question |
| Advancing constraints | Can they advance when needed? |
| Insurance lapses | Coverage gaps |
| Audit findings | Control issues |
| Ownership changes | Strategy uncertainty |
status: draft
Major servicers
Primary servicers
| Servicer | Strengths | Volume |
|---|
| Cenlar | Scale, technology | Large |
| Specialized Loan Servicing | Non-QM expertise | Large |
| LoanCare | Broad platform | Large |
| NewRez | Vertically integrated | Large |
| RoundPoint | Technology-forward | Medium |
Special servicers
| Servicer | Strengths | Focus |
|---|
| Carrington | Modification expertise | RPL, NPL |
| PHH / Ocwen | NPL workout | NPL |
| Specialized Loan Servicing | Non-QM RPL | RPL |
| Bayview Loan Servicing | Portfolio management | RPL, NPL |
| Shellpoint | Integrated platform | RPL |
status: draft