What is Mortgage Excess Servicing?
Mortgage excess servicing is the percentage remainder of the annual yield on a mortgage-backed security (MBS) once it has been allocated between the holder, the servicer, and the underwriter.
How Does Mortgage Excess Servicing Work?
The annual yield on an MBS is divided into three components: interest and principal for the holders and fees for the servicer and underwriter. Excess mortgage servicing is the percentage yield left over once these three payments have been made to the appropriate people.
For example, suppose an MBS pays an annual yield of 10%. The holder receives 9%, the servicer receives 0.30%, and the underwriter receives 0.20%. The mortgage excess servicing would be 0.50% (10% - 9% - 0.30% - 0.20% = 0.50%).
Why Does Mortgage Excess Servicing Matter?
Mortgage excess servicing is distributed to the servicer or as a guarantee payment for the underwriter. Due to fluctuations in interest rates, the mortgage excess servicing on an MBS may vary.
- Create a retirement savings goal
- Design an investment plan to reach it.
- Get a professional money manager to continually monitor and rebalance your portfolio
Sound complicated? Don't stress. Vanguard's new robo advisor service can help you put all of this (and more!) on autopilot, all for an annual gross advisory fee of just 0.20%.
Click here to learn more about Vanguard's new Digital Advisor service.
