A mortgage fund runs the servicing framework on one of two structures — the subservicing framework under 12 CFR §1024.31 or the in-house servicing framework under direct execution. This article compares the two frameworks across the fixed-cost burden, the regulatory exposure, the SOC engagement framework, and the loan-count breakeven framework.

Fixed-cost burden

The subservicing framework runs the fund’s fixed-cost burden against the per-loan or basis-point compensation framework with the subservicer. The fund runs no proprietary servicing platform license, runs no compliance-officer headcount against the loan-servicing function, and runs no SOC audit engagement against the fund’s own service-organization framework. The in-house framework runs the fund’s fixed-cost burden against the proprietary platform license, the compliance-officer headcount, the SOC 1 Type II and SOC 2 Type II audit engagement, the distinct errors-and-omissions framework, and the regulatory-grade compliance management system. The fixed-cost framework runs the subservicing engagement against the in-house build on the under-five-thousand-loan range.

Regulatory exposure

The subservicing framework runs the fund’s regulatory exposure against the master-servicer accountability framework under 12 CFR §1024.31. The fund holds the note and runs the regulatory accountability against the lender-investor base, and the subservicer runs the loan-level compliance execution against the underlying federal and state frameworks — RESPA Regulation X, TILA Regulation Z, FDCPA, FCRA, GLBA Safeguards Rule, and the state-level servicer-licensing framework. The in-house framework runs the fund’s regulatory exposure directly against each federal and state framework and runs the fund into the state-by-state servicer-licensing framework against the loan-collection function. The regulatory framework runs the subservicing engagement against the in-house build on the multistate-portfolio framework.

SOC engagement framework

The subservicing framework runs the fund’s SOC engagement framework against the subservicer’s SOC 1 Type II report and SOC 2 Type II report. The fund runs the SOC reports into the fund’s own financial-statement audit framework under AS 2601 service-organization audit standards and runs the fund’s own audit framework against the SOC report’s operating-effectiveness opinion. The in-house framework runs the fund as its own service organization on the loan-servicing function and runs the fund’s own SOC 1 Type II and SOC 2 Type II engagement against the lender-investor base and the fund’s downstream parties. The SOC framework runs the subservicing engagement against the in-house build on the audit-economics framework.

Loan-count breakeven framework

The loan-count framework runs the subservicing engagement against the in-house build on three ranges. The under-five-hundred-loan range runs the subservicing framework against the in-house build on the fixed-cost burden — the platform license, compliance-officer headcount, and SOC audit engagement run against a revenue framework against a small loan base. The five-hundred- to five-thousand-loan range runs the subservicing framework as the operationally efficient framework against the in-house build, except where servicing runs as a core differentiation framework for the fund. The five-thousand-plus-loan range runs the in-house build against the breakeven framework on per-loan cost, against the scale-appropriate technology framework, and against the regulatory-grade compliance management framework.

When each framework runs

The subservicing framework runs the mortgage fund on the under-five-thousand-loan range and the multistate portfolio against the operational efficiency and regulatory accountability framework. The in-house framework runs the mortgage fund on the five-thousand-plus-loan range and the single-state portfolio against the per-loan cost framework and the core-differentiation framework. The two frameworks run different operational structures and different cost frameworks and different regulatory-exposure frameworks against the same portfolio.

Related Topics

This article is educational and does not constitute legal advice. The mortgage fund subservicing framework runs under 12 CFR §1024.31 — RESPA Regulation X — and runs against federal frameworks including the GLBA Safeguards Rule under FTC 16 CFR §314 and the Investment Company Act §3(c)(5)(C) real-estate exception. State frameworks run against the California Department of Real Estate §10145 trust-fund framework and the equivalent state-level frameworks against the subservicer’s licensure. Consult qualified legal counsel and a qualified fund administrator on any specific fund portfolio.

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