Potential issuers of private-label securities are considering a structure that will require the primary servicer to hand over newly delinquent home mortgages to a special servicer, according to a credit rating agency official.
Fitch Ratings managing director Diane Pendley said several issuers have approached Fitch about using this dual servicing structure that is common in the commercial mortgage-backed securities market.
"This structure makes sure the right servicer is doing the right amount of work and they are being compensated properly," she told NMN.
The primary servicer would continue collections until the loan is 60 days delinquent. Then the servicing would be passed to the special servicer who would be under contract to engage in loss mitigation activities.
The primary servicer would receive a flat fee and the special service would be compensated based on services rendered.
The contract would dictate how "aggressive" the special servicer should be in making contact with delinquent borrowers and providing a range of loan modification options.
"The level of service will be spelled out in the Pooling & Servicing Agreement and the price," Pendley said.
She also said that the primary servicer should have no financial ties to the special servicer. "We want to be sure there is no indication or possibility the primary servicer is not doing early collections."
The Fitch Ratings managing director also noted the special servicer should continue to service re-performing loans.
"Once a loan goes into default, the risk of it going back into default is much higher," Pendley said.