[발췌] Mortgage servicing (2011)

지은이: Adam J. Levitin & Tara Twomey, 2011
출처: https://www.law.georgetown.edu/cle/materials/alumni/mortgage-servicing.pdf

※ 발췌:

ABSTRACT: ( ... ) A traditional mortgage lender decides whether to foreclosure or restructure a defaulted loan based on its evaluation of the comparative net present value of those options. Most residential mortgage loans, however, are securitized. Securitized mortgage loans are managed by third-party mortgage servicers as agents for mortgage-backed securities (MBS) investors.

Servicers' compensation structures create a principal-agent conflict between them and MBS investors. Services have no stake in the performance of mortgage loans, so they do not share investors' interest in maximizing the net present value of the loan. Instead, servicers' decision of whether to foreclosure or modify a loan is based on their own cost and incme structure, which is skewed toward foreclosure. The costs of this principal-agent conflict are thus externalized directly on homeowners and indirectly on communities and the housing market as a whole.

( ... ... ) Correcting the principal-agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.


INTRODUCTION

( ... ... ) Homeownership is beyond means of most families absent mortgage financing, and most of the regulatory schemes relate to the mortgage originatin process and to the foreclosure sale process─the birth and death of the mortgage.[n3] There is scant regulation, however, of everything that occurs in the course of the mortgage's lifespan, between its originatin and its eventual end via payoff or foreclosure. This in-between period involves the management of mortgage loans, including collection of payments and restructuring of the loan in the event of the borrower's financial distress, and is known as ^mortgage servicing^.

Mortgage servicing has begun to receive increased scholarly, popular, and political attention as a result of the difficulties faced by financially distressed homeowners when attempting to restructure their mortgages amid the home foreclosure crisis.[n4] In particular, the mortgage servicing industry has been identified as a central factor in the failure of the various government loan modificatin programs, including Home Affordable Modification Program (HAMP).[n5] Mortgage servicing, however, remains a poorly understood industry, and this has impeded policy responses to the foreclosure crisis. ( ... ... )

This Article is a first step in that direction. It provides a detailed overview of  the  servicing  business,  including  its  regulation  and  economics. In  so  doing, the  Article  identifies  a  principal-agent  conflict  in  the  servicing  market  that contributes to unnecessary home foreclosures, to the detriment of homeowners and mortgage investors alike.

The economics of the servicing industry often discourage the restructuring of defaulted mortgage loans, even when it would be value-maximizing for mortgage investors. Servicing combines two distinct lines of business: transaction processing and administration of defaulted loans. Transaction processin is highly automatable and susceptible to economies of scale. Defaulted loan administration, in contrast, can either be automated or hands-on. Automated default administration, referred to as "default management," means that defaulted loans are referred to foreclosure with factory-like precision.[n6] ( ... ... ) The combination of business lines means servicers are ill-prepared to perform their loss mitigation function in a way that maximizes value for mortgage investors. ( ... ... )


I. Overview of the Mortgage Servicing Industry

A. Servicing and Securitization

1. Traditional Portfolio Lending

In a traditional mortgage lending relationship, a lender makes a loan, retains the loan in its portfolio, and services the loan itself.[n23] The lender sends out monthly billing statements and collects the payments. If the loan defaults, the lender will address the default with the goal of maximizing the loan's net present value, subject to its own valuation idiosyncracies, such as liquidity needs.[n24] A traditional portfolio lender has an undivided economic interest in the loan's performance and therefore fully internalizes the costs and benefits of its management decisions, such as whether to restructure or foreclosure on a defaulted loan.

The traditional portfolio lending relationship, however, is now the exception in the home mortgage market. Instead, mortgages are generally financed through securitization. Securitization is a financing method involving the issuance of securities against a dedicated cashflow stream, such as mortgage payments, that is isolated from other creditors' claims. Securitization links consumer borrowers with capital market financing, potentially lowering the cost of mortgage capital. It also allows financing institutions to avoid the credit risk, interest-rate risk, and liquidity risk associated with holding the mortgage on their own books.

Currently, about 65% of all outstanding residential mortgages by dollar amount are securitized.[n25] ( ... ... )

2. Mortgage Securitization

Although a mortgage securitization transaction is extremely complex and varies somewhat depending on the type of entity undertaking the securitization, the core of the transaction is relatively simple.[n31]

First, a financial institution (the "sponsor" or "seller") assembles a pool of mortgage loans.[n32] The loans were either made("originated") by an affiliate of the financial institution or purchased from unaffiliated third-party originators. Second, the pool of loans is sold by the sponsor to a special-purpose subsidiary )the "depositor") that has no other assets or liabilities.[n33] This is done to segregate the loans from the sponsor's assets and liabilities.[n34] Third, the depositors sells the loans to a passive, specially created, single-purpose vehicle("SPV"), typically a trust in the case of residential mortgages.[n35] The SPV issues certificated securities to raise the funds to pay the depositor for the loans. Most of the securities are debt securities─bonds─but there will also be a security representing the rights to the residual value of the trust or the "equity/"

The securities can be sold directly to investors by the SPB or, as is more common, they are issued directly to the depositors as payment for the loans. The depositors then resells the securities, usually through an underwriting affiliate that then places them on the market. The depositors uses the proceeds of the securities sale (to the underwriter or the market) to pay the sponsor for the loans. Because the certificated securities are collateralized by the residential mortgage loans owned by the trust, they are called residential mortgage-backed securities (RMBS).

A variety of reasons ( ... ) mandate that the SPV be passive; it is little more than a shell to hold the loans and put them beyond the reach of the creditors of the financial institution.[n38] Loans, however, need to be managed. Bills must be sent out and payments collected. Thus, a third party must be brought in to manage the loans.[n39] This third party is the servicer. The servicer is supposed to manage the loans for the benefit of the RBMS holders.

[n39] See Eggert, ^Limiting Abuse^, supra note 19, at 754.

Every loan, irrespective of whether it is securitized, has a servicer: Sometimes that servicer is a first-party servicer, such as when a portfolio lender services its own loans. Other times, it is a third-party servicer that services loans it does not own. All securitization involve third-party servicers, but many portfolio loans also have third-party servicers, particularly if they go into default. Third-party servicing contracts for portfolio loans are not publivly available, making it hard to say much about them, including the precise nature of servicing compensation arrangements in their cases or the degree of oversight portfolio lenders exercise over their third-party servicers. Thus, it cannot always be assumed that if a loan is not securitized, it is being sericed by the financial institution that owns the loan; however, if the loan is securitized, it has third-party servicing.

Securitization divides the beneficial owenership of mortgage loans from legal title to the loans and from the management of the loans. The SPV (or more precisely its trustee) holds legal title to the loans, and the trust is the nominal beneficial owner of the loans. The RMBS investors are formally creditors of the trust, not owners of the loans held by the trust.

The economic reality, however, is that the investors are the true beneficial owners. The trust is just a pass-through holding entity, rather than an operating company. Moreover, while the trustee has nominal title to the loans for the trust, it is the third-party servicer that typically exercises legal title in the name of the trustee.  The economic realities of securitization do not track with its legal formalities; securitization is the apotheosis of legal form over substance, but puctilious respect for formalities is critical for securitization to work.

Mortgage servicers provide the critical link between mortgage borrowers and the SPV and RMBS investors, and servicing arrangements are an indispensable part of securitization.[n40] Mortgage servicing has become particularly important with the growth of the securitization market. The mortgage securitization market has grown at  a rapid pace in recent years. By the end of 2009, there was $6.97 trillion in outstanding U.S. RMBS.[n41] To put this in perspective, the principal amount of mortgage-related bonds outstanding at the end of 2009 was larger than the amount of U.S. Treasury bonds (which, in turn, was larger than the amount of U.S. corporate bonds), and accounted for over a fifth of the U.S. bond market.[n42]

3. Segmentation of the Mortgage Securitization Market

( ... ... )