At the recent Mortgage Bankers Association National Secondary Conference & Expo 2005 held in San Francisco, one of the hot topics was the right level for minimum GSE servicing fees. Although no GSE representatives were present - as neither Fannie Mae nor Freddie Mac has formalized its stance on whether to reduce the 25 basis point minimum servicing fee - discussions centered on the differences between the required servicing fee for prime and private label MBS.

Diane Pendley, a managing director in the operational risk group at Fitch Ratings and a panelist at the MBA conference, said that although there is no direct correlation between GSE minimum servicing fees and servicing fees in private securities, many of the same seller/servicers participate in both types of products. Some of the biggest proponents for servicing fee reduction operate on economies of scale, which reduces individual unit cost.

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