Options for Reforming the Mortgage Servicing Compensation Model

Brief

Options for Reforming the Mortgage Servicing Compensation Model

Abstract

In this brief, the fifth in a series prepared by HFPC researchers with support from the mortgage servicing collaborative, the authors examine three options for the mortgage servicing compensation structure: (1) retain the status quo, (2) move to a fee-for-service model, and (3) move to a central default utility model. The authors discuss the pros and cons of each scenario and assess how each option would perform under various conditions. The authors do not recommend a single option, but articulate considerations of each to help inform future policy discussions on mortgage servicing compensation. There are differing views on the issue, where some suggest servicing compensation must be changed to better align servicing costs and revenues for performing and nonperforming loans in a manner that will improve outcomes for servicers and consumers, while others believe that the present compensation model, coupled with post-crisis reforms and the recommendations from the previous MSC briefs, can promote an efficient servicing market with minimal risk of disruption. 

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