Rethinking the Master Servicing Role in Light of Changing RMBS Needs

Abstract

The focus of this article is on one small but very important component of the residential mortgage securitization process: the role of the master servicer. The primary duties of the master servicer are in three functional areas: cash management, investor reporting, and servicer oversight. This article addresses possible enhancements to the master servicer’s role in transactions that might add value to the investor. First, investors should play a more open and integrated role in structuring the transaction, not just from the cash flow side, but also from the master servicing and servicing side. Second, newly structured transactions should specifically and separately address the proper transaction accounting and cash flow distributions that are impacted by both the forbearance and forgiveness of principal and interest. Third, a securitization transaction’s governing documents should task one or more unconflicted parties with undertaking a periodic diligence or administrative review of loans and loan-level representations and warranties, whether on a sample or more substantial but still targeted basis.

TOPICS: MBS and residential mortgage loans, CMBS and commercial mortgage loans