Mortgage Servicing Rights (MSR)

Mortgage Servicing Rights (MSR) is the right to service a mortgage loan, including collecting payments, managing escrow accounts, and handling customer service. When a borrower obtains a mortgage from a lender, the lender may choose one of the following:

  1. to retain the servicing rights.
  2. or to sell them to another party, such as a mortgage servicer or an investor.

The mortgage servicer is responsible for various aspects of loan administration. They typically include collecting monthly payments from borrowers, maintaining escrow accounts (if applicable), managing delinquencies and defaults, handling customer inquiries and complaints, and ensuring compliance with relevant regulations.

Transfer of Mortgage Servicing Rights

The transfer of MSR from one entity to another often occurs in the secondary mortgage market. This is where one can buy and sell mortgage-backed securities (MBS). Investors or financial institutions may purchase MSRs as an investment, as they can provide a steady stream of cash flows from the servicing fees collected on the mortgage loans.

It’s important to note that the transfer of MSR does not involve the transfer of the underlying mortgage note itself. The ownership of the loan and the associated risks remain with the original lender or investor. The MSR only represents the right to service the loan and earn the associated fees and compensation for the servicing activities.

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