Introduction to Securitization

TYPES OF SERVICERS

As the origination, servicing, and resolution of assets becomes increasingly fragmented, the usual hold-all function approach to retail assets is giving way to specialized services. Broadly speaking, for residential and commercial mortgages, three types of servicing functions have emerged, the fourth type below is the contingency that any of the first three may have to be replaced in exceptional cases:

• Primary servicer. The primary servicer is the entity who originated the loan and maintains the franchise with the obligors. Usually, it is the originator who has regular dealings with the borrower.

• Master servicer. At the transaction pool level, the master servicer is responsible for ensuring the smooth functioning of the entire transaction, including adherence by each servicer of the servicing functions.

• Specialized servicer. Normally, the specialized servicer is brought in when an asset becomes nonperforming. Essentially, this is the servicer having expertise in the resolution of such problem loans. The loan might end up in foreclosure, may be restructured, or may otherwise be corrected.

• Backup servicer. Generally a standby servicer who would step in if there are any events of default with the primary or master servicer. We take up backup servicers later in this chapter.

 

For commercial mortgage-backed securities (CMBS) transactions, there might be more than one master servicer, particularly in conduit or fusion conduit deals.

The allocation of ...