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Mozilo Thinks GSEs Should Cut Minimum Servicing Fee.(Angelo Mozilo)
Countrywide's Angelo Mozilo has fought many battles in his long and storied career but before he retires he would like to accomplish one more feat of daring - convincing Fannie Mae and Freddie Mac to slash their minimum servicing fee. Under current rules of engagement with the industry, Fannie and Freddie have set a minimum servicing fee of 25 basis points. Mr. Mozilo, chairman and chief executive of Countrywide Financial, the nation's largest residential funder, thinks a 12 basis point servicing fee sounds about right.
On the surface, 25 basis points may seem like a fair arrangement, but the problem - as Mr. Mozilo and others in the industry point out - is that the 25 basis points of anticipated servicing income has to be capitalized and hedged against, and therein lies the problem. Over the past 30 months the mortgage industry has tried to manage through what seems like a never-ending refinancing tsunami. Industry production keeps chugging along at a near-record pace, but servicing impairment charges (and hedging costs) have become a major nuisance.
"That 25 basis points is an asset we have to hedge against," said Mr. Mozilo, who is nearing the end of his career. "It costs us and the industry hundreds of millions of dollars a year."
But will the government-sponsored enterprises bite? Mr. Mozilo said he has discussed the issue with Franklin Raines, and Richard Syron, the chairmen and CEOs, respectively, of Fannie and Freddie.
"So far the answer has been no," said Mr. Mozilo. (Countrywide sells most of its conventional production to Fannie, but might in the future begin giving Freddie more business.) But he also believes that in time, the GSEs might possibly see the light.
"If the GSEs cut the minimum to 12 basis points, costs could come down dramatically for the consumer," he said. "Given what these two firms have been through lately" in regard to their accounting problems, "I think they're beginning to open their eyes."
What do others in the industry think of the idea? One executive at a large, West Coast-based servicer, requesting anonymity, said, "We like to see that reduction, too. Everyone is sick of the all the problems we've had with hedging the MSR."
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Source: HighBeam Research, Mozilo Thinks GSEs Should Cut Minimum Servicing Fee.(Angelo Mozilo)