Mortgage Servicing Fees and Servicer Behavior

57 Pages Posted: 21 Jul 2020 Last revised: 13 May 2021

See all articles by Moussa Diop

Moussa Diop

University of Southern California

Chen Zheng

affiliation not provided to SSRN

Date Written: May 9, 2020


This study explores incentive issues associated with the servicer compensation structure in non-agency securitizations. First, we document key stylized facts on servicing fees. We show that they decrease with loan quality, loan amount, and loan maturity; suggest economies of scale in servicing; increase with the intensity of default in outstanding deals; and are lower on issuer-serviced loans. As a key contribution of this study, we show that servicing fees play a significant role in mortgage modification and foreclosure as servicers protect their cash flows, possibly to the detriment of security investors, by keeping alive loans paying high fees. As the government retrenches from housing finance, leaving room for private lending and securitization, this incentive problem in servicing will become a pressing issue for regulators to address.

Keywords: Mortgage Servicing, Servicing Fees, Non-Agency Mortgage-Backed Securities, Mortgage Modification and Foreclosure, Servicer Incentives

JEL Classification: G21, G23, G24, R3

Suggested Citation

Diop, Moussa and Zheng, Chen, Mortgage Servicing Fees and Servicer Behavior (May 9, 2020). Available at SSRN: or

Moussa Diop (Contact Author)

University of Southern California ( email )

Sol Price School of Public Policy
RGL 315
Los Angeles, CA 90089
United States
(213)821-0467 (Phone)

Chen Zheng

affiliation not provided to SSRN

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