Special Servicer - Overview

Overview

Servicers (servicing companies) are normally compensated by receiving a percentage of the unpaid balance on the loans they service. In most cases these companies don't own the loans, but there are exceptions. The fee rate can be anywhere from one to twenty five basis points depending on the size of the loan, whether it is secured by commercial or residential real estate, and the level of service required. Those services can include (but aren't limited to) statements, impounds, collections, tax reporting, and other requirements.

The net present value of the flow of payments received from servicing less the expected costs to servicers creates an asset which remains on the balance sheets of servicers. Since in refinancing periods loans are often quickly prepaid and hence servicing fees cease, the value of these assets is extremely volatile.