Fannie Mae-No Politics (FNMA)

[FOFreddie]

Mortgage Servicers collect mortgage payments and hold escrow accounts for real estate taxes and insurance for some borrowers. They make sure FNMA gets the mortgage payment necessary to make the payment on the MBS mortgage pools and that real estate taxes are paid and the insurance premiums are paid.

As approved servicers by FNMA and FMCC they have to have the financial stability and business ethics not to run away with the money and advance mortgage payments even when the homeowner does not pay. Eventually the homeowner will go into foreclosure, sell the house or pay the mortgage with late fees. The servicer likes fees because it gets its money back that was advanced to FNMA but with penalties and interest.

Another thing that happens is that some mortgages are issued at higher rates or at rates when interest rates were generally higher so perhaps the mortgage servicer not only gets a fee but keeps the excess amount over the average coupon of the MBS pool. Sometimes the excess servicing amount is sold to an investor which could complicate things for the servicer when mortgages are not paid on time.

All of this points to a volume business with higher capital needs if a lot of homeowners miss payments like now. The other thing is that when interest rates fall - homeowners refinance so the servicer golden goose
is gone so mortgage servicers are not only stressed because they have to come up with the capital to advance payments to FNMA but they will likely loose there book of business when mortgage rates fall after things settle down. When a refinance happens there may be a totally different mortgage servicer for the new loan.

As you can imagine the business has changed a lot but some servicers may have not adapted to new technology because AI probably can do a lot of this work these days. Calabria is right because the US taxpayer should not be bailing out bad business models. Also - right now mortgage servicers only need to advance the April 1 payment so there is plenty of time to see who is crying wolf for the right reasons.

Here is a Wikipedia cite:

https://en.wikipedia.org/wiki/Mortgage_servicer