Service Release Premium
Encyclopedia
A Service Release Premium (SRP) is the payment received by a lending institution, such as a bank or retail mortgage lender, on the sale of a closed mortgage loan
to the secondary mortgage market
. The secondary mortgage market purchaser is typically a Wall Street investment bank, Fannie Mae, Freddie Mac, or Ginnie Mae, as the first step in the creation of a mortgage-backed security
(MBS). Today, virtually all mortgages closed are purchased by the US government through the GSE Mortgage Backed Securities Purchase Program
The amount of SRP paid is based on the market value of the mortgage note, influenced by several key variables, such as interest rate, loan type, margin (for ARM loans), and the inclusion or exclusion of other items such as prepayment penalties. Also considered are the loan's LTV (loan to value), the borrower's credit score, the presence of Private Mortgage Insurance (PMI), pre-payment risk of the borrower and other factors beyond the scope of this article.
Since servicing was brought on balance sheet by all lenders there has been consolidation in the servicing market because many servicers believed that they could cross sell their products through servicing portfolios. While this strategy hasn't been as profitable as many would have thought it has worked well for some. These servicers therefore paid a premium for servicing compared to its present value.
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
to the secondary mortgage market
Secondary mortgage market
The secondary mortgage market is the market for the sale of securities or bonds collateralized by the value of mortgage loans. The mortgage lender, commercial banks, or specialized firm will group together many loans and sell grouped loans as securities called collateralized mortgage obligations ....
. The secondary mortgage market purchaser is typically a Wall Street investment bank, Fannie Mae, Freddie Mac, or Ginnie Mae, as the first step in the creation of a mortgage-backed security
Mortgage-backed security
A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...
(MBS). Today, virtually all mortgages closed are purchased by the US government through the GSE Mortgage Backed Securities Purchase Program
The amount of SRP paid is based on the market value of the mortgage note, influenced by several key variables, such as interest rate, loan type, margin (for ARM loans), and the inclusion or exclusion of other items such as prepayment penalties. Also considered are the loan's LTV (loan to value), the borrower's credit score, the presence of Private Mortgage Insurance (PMI), pre-payment risk of the borrower and other factors beyond the scope of this article.
Since servicing was brought on balance sheet by all lenders there has been consolidation in the servicing market because many servicers believed that they could cross sell their products through servicing portfolios. While this strategy hasn't been as profitable as many would have thought it has worked well for some. These servicers therefore paid a premium for servicing compared to its present value.