When Fannie Mae and Freddie Mac fashioned a plan to securitize servicing rights, they saw mortgage banks as the beneficiaries. But the gambit has also caught the eye of bank and thrift regulators.

Executives at the bank agencies have begun quietly reviewing the plan to see whether it has applications for their holdings. After all, bank regulators - by dint of having seized so many financial institutions - are among the biggest mortgage servicers.

An official at the Federal Deposit Insurance Corp. who deals with mortgages said she had been speaking with Fannie Mae and other agencies about the securitizing plan.

Her initial assessment: The measure has appeal as a risk management tool. "This is something we certainly should be looking at," said the official, who asked that her name not be used.

She added that a colleague in the Office of Thrift Supervision was also looking into how the plan could help his agency better manage its portfolio of mortgages.

Under the plans separately crafted by Fannie Mae, formally the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp., mortgage bankers would, for the first time, be allowed to include revenues from servicing rights with the loans they want to securitize.

As initially proposed this spring, the plan drew opposition from Wall Street traders, who said the inclusion of servicing would make the mortgage-backed bonds too volatile. In a compromise early last month, Fannie Mae and Freddie Mac said they would proceed with the securitizations but that the resultant mortgage-backed issues would trade under a different prefix, separately from the $1.5 trillion mainstream market for mortgage securities.

Meanwhile, the Mortgage Bankers Association of America weighed in with a white paper pointing up potential benefits that may have been obscured while the Wall Street traders and housing finance agencies were debating the original plan.

The mortgage trade group says the process would be most attractive to midsize companies since "many large servicers claim they can hedge the servicing portfolio at a better price" than through securitization.

The plan would, unlike outright sales of servicing, allow lenders to hold on to late fees, float, and other ancillary income. Lenders would also retain cross-selling opportunities and profits from escrow balances.

And by selling servicing-income rights, mortgage bankers would get up- front cash, instead of compensation over the life of the loan. The ready capital would provide "greater investment flexibility," the white paper states.

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