Introduction to Mortgage Servicing Examinations Training - March 2023

asset managers acquired massive portfolios of mortgage servicing rights after 2011, many of which initially consisted of delinquent loans that required specialized skill in high-touch servicing. As the volume of delinquent loans sold by depositories following the crisis trailed off and more loans resolved, this market niche consolidated, and the trading of MSRs evolved to focus on newer production and servicing of GSE and government-backed loans often in Agency sponsored MBS. Changes in the mortgage market and nonbank servicer rapid growth have highlighted the critical services these institutions provide to homeowners, investors, and other market participants. A more detailed discussion of the nonbank mortgage origination and servicing markets, including a description of servicer business model and risk can be found in the CSBS white paper series entitled Reengineering Nonbank Supervision , found at www.CSBS.org. Nonbank Mortgage Servicing Administration Mortgage loan servicing is a critical component of the broader housing finance system. Loan administration by nonbank mortgage servicing companies include the following responsibilities and servicing functions: • Calculating, collecting, recording and remitting a mortgage loan borrower’s principal, interest, taxes, insurance or other payments • Maintaining accurate account records and customer billing statements. • Managing mortgage escrow accounts (taxes, insurance, etc.) • Providing accurate investor reporting • Collecting and managing insurance claims • Distributing, tracking, and financing servicing advances • Managing delinquent and defaulted mortgage loans, as well as those in bankruptcy proceedings • Assessing loans for modification and other loss mitigation activities • Overseeing foreclosure proceedings

• Managing real estate owned (REO) following foreclosure • Maintaining accurate and reliable cash management systems • Maintaining adequate technology, information systems and data security • Vendor oversight • Regulatory compliance, internal audit and quality control

Nonbank mortgage servicing companies perform these functions on behalf of mortgage loan owners and guarantors, be they financial institutions, private investors, Ginnie Mae, Fannie Mae or Freddie Mac. Nonbank servicers earn contractually established fee income, typically based on the unpaid principal balance (UPB) of the loans serviced. Nonbank mortgage servicers

6 Proposed Prudential Standards for Nonbank Mortgage Servicers 2021