Mortgage Excess Servicing
What it is:
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 it works (Example):
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 it Matters:
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.
