Abstract
Investors in residential mortgage-backed securities have a vested interest in the operational performance of mortgage servicers, who collect monthly mortgage payments, forward principal and interest payments, complete loss-mitigation actions, foreclose on defaulted loans, and manage the sale of real estate owned (REO) properties with real estate agents. Traditional rankings of how servicers manage their operational risk, based on analysis of their management and organization, loan administration, and default management, have not fully taken into account performance forces outside the control of the servicer. Over the course of the mortgage meltdown and the financial crisis, it became apparent that additional quantitative measures were required to evaluate servicer success based on the collection of cash and the minimization of severity upon liquidation. The authors describe a statistically based analytical method that considers all forces affecting mortgage cash flow and provide a single measure based on cash collection of how a servicer has performed against expectations and relative to its peers. <b>TOPICS:</b>Performance measurement, MBS and residential mortgage loans, CMBS and commercial mortgage loans
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