​Guidance

​An Enterprise should only approve those transactions that are consistent with sound business practice, aligned with the Enterprise’s board-approved risk appetite, and in compliance with regulatory and Conservator requirements. Certain bulk servicing transfers also require the approval of FHFA as Conservator for the Enterprises.​

Each Enterprise should have in place policies and procedures within its risk management program for evaluating risks of proposed sales or transfers of MSRs and transfers of the servicing of mortgage loans, considering the particular circumstances of the transfers (e.g., volume and profile of the loans transferred, structure and complexity of the transaction, counterparty exposure, servicing concentrations, and/or borrower experience). The Enterprise’s policies and procedures should identify, assess, and appropriately mitigate risk. The policies and procedures should provide for risk-based periodic reporting to the board of the transfers’ risk effect on the mortgage servicing portfolio. The Enterprise should maintain documentation of supporting analysis of transfer approval decisions that is sufficient to enable subsequent supervisory review.

​This advisory bulletin sets forth guidance for how each Enterprise should develop policies and procedures for reviewing and approving the sale and transfer of MSRs or the transfer of the servicing of mortgage loans. The policies and procedures should enable the Enterprise to understand its potential counterparty risk exposure resulting from servicing transfers.

​Analysis of Mortgage Servicing Transfers

The Enterprise should analyze and document the terms and conditions of all proposed transactions. The Enterprise should evaluate the risks and potential benefits of proposed transfers, taking into account relevant factors regarding the transferee, the transferor, and the borrower, as well as, the Enterprise’s overall risk management strategy for servicers. The analysis should incorporate and reflect the views of both risk management and business line management.

The analysis should reflect a risk-based approach and consideration of all relevant risks, including (but not limited to) the following factors:

Financial Risk Factors

• Financial strength of the transferee servicer or the MSRs owner based upon a current analysis;
  
• Existing and anticipated sources of capital and liquidity for the transferee servicer or the MSRs owner;
  
• Confirmation of the responsible party(ies) for origination and servicing representation and warranty obligations;
  
• Ability of all relevant participants to meet contractual obligations, including representations and warranties and other contractual obligations, including during adverse scenarios in which the counterparty may have trouble accessing liquidity and capital;
  
• Terms of any financial support arrangements (e.g., letters of credit, net worth or other guarantees, or other investment structures that securitize the servicing income or the advance receivables); and
  
• Complexity of the counterparty financial structure, including financial arrangements with other parties.
  

​Operational Risk Factors

• The Enterprise’s, the transferee’s, and the transferor’s business objective for the proposed transfer;
  
• Transferee servicer’s status as an “approved” servicer by the Enterprise;
  
• Transferee servicer’s and any sub-servicer’s delegations and authority to conduct business on behalf of the Enterprise in relation to the servicing portfolio being transferred;
  
• Organizational structure, location, management team, and operations of the transferee servicer and any sub-servicers;
  
• Transferee servicer’s and any sub-servicer’s expertise and performance record, including the results of recently conducted Enterprise on-site reviews;
  
• Servicing fee distribution between the MSRs owner and the transferee servicer to ensure proper alignment of incentives and coverage of costs;
  
• Servicer capacity, taking into account staffing, facilities, information technology systems, and any sub-servicing arrangements;
  
• Outstanding obligations and past performance regarding repurchase recoveries and compensatory fee recoveries;
  
• Operational complexity of the transaction;
  
• Third party service providers or vendors contractually obligated to the servicer, but not to the Enterprise;
  
• Adequacy of the transferee servicer’s business continuity plan, inclusive of any applicable sub-servicers or material vendors;
  
• Current and potential effects of the transfer on borrowers, including those associated with in-process workouts, bankruptcies, and litigation; and
  
• Overall effect of the transfer on the servicer relationship and any resulting counterparty concentrations for an Enterprise.
  

Legal and Compliance Risk Factors

• Potential compliance risk associated with the characteristics of the mortgage loans being serviced;
  
• Based upon publicly available information, the transferor servicer’s, transferee servicer’s, and any sub-servicer’s record of compliance with consumer protection laws, including provisions of the Consumer Financial Protection Bureau’s Regulation X, which implements the Real Estate Settlement Procedures Act;
  
• Extent to which the transferor servicer, transferee servicer, and any sub-servicer is subject to federal or state regulatory oversight; and
  
• Any public regulatory or other enforcement actions relating to safety and soundness, legal, or compliance issues (e.g., consumer compliance, fraud, financial reporting) of the servicers or sub-servicers.
  

Policies and procedures should be consistent with prudent counterparty risk management practices and with FHFA guidance, including risk-based contingency planning in accordance with FHFA Advisory Bulletin AB-2013-01, Contingency Planning for High-Risk or High-Volume Counterparties, as appropriate.