Banks are losing their appetite for servicing the mortgages they underwrite. Although the two businesses once seemed complimentary, new capital requirements make it much less attractive for lenders to keep servicing rights on their books. Throw in the stringent requirements imposed by the National Mortgage Settlement, and servicing is suddenly much a less attractive business.
There is no shortage of players willing to replace banks, but these relative newcomers don’t have the same access to cheap funding as depositary institutions. Servicers don’t just collect interest and principal payments and distribute them to holders of mortgage-backed securities; they also advance funds to investors when borrowers miss payments.These advances are eventually reimbursed, but it can take months, and in some cases years.