Introduction to Securitization

THE SERVICING FUNCTION

The term servicing function, or the collection and servicing function, is an industry term that includes the array of functions whereby an interface is provided to the obligors as well as the investors. All the various activities that the originator would have, in normal course of business, performed in relation to the obligors—sending invoices, monitoring collections, sending reminders, taking recovery action, and so on—and all the activities in relation to distribution of the cash so collected to investors are covered by the catchall word servicing.

The U.S. Securities and Exchange Commission (SEC) Regulation AB seeks to define servicing function as follows: “We propose to define ‘servicer’ as any person responsible for the management or collection of the pool assets or making allocations or distributions to holders of the asset-backed securities.”