Residential mortgage servicing rights have been steadily migrating to nonbanking institutions, due to regulatory changes in capital requirements imposed on banking institutions, which have caused MSRs to become an expensive asset for banks to retain on their balance sheets.  Nonbanks may have their own servicing platforms or they may subcontract with a subservicer to whom they pay a subservicing fee, which is a fraction of the servicing fee to which the MSR owner is contractually entitled.  As servicing continues to shift away from banks, the industry will see greater need for financed servicing for the nonbanks acquiring MSRs.

The industry should move to address these issues now before the liquidity crunch reaches a crisis point.

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