A reduction in mortgage servicing fees by the government-sponsored enterprises would be a "meaningful positive" for the industry, according to analysts with KBW Inc.'s Keefe Bruyette & Woods Inc.
In a note issued Wednesday in reaction to an
Thus, originators would be allowed to "hold and fund smaller MSRs," volatile intangible assets that can account for no more than 10% of Tier 1 common equity under Basel III. A reduction would "be a significant positive from a capital perspective."
The conclusion assumes that the current standard GSE servicing fee of a quarter of 1% of principal balances exceeds the actual costs of servicing, and the KBW analysts wrote that "if an originator did not like a lower servicing fee and wanted more servicing revenue, it could simply retain more excess servicing and replicate the position it had before servicing fees were reduced."
As a window on the possible impact of a cut, the KBW analysts cited a reduction in the servicing fee for adjustable-rate mortgages by Fannie Mae in 2006 that they believe had "no impact on gain-on-sale margins of that product."