Question

When the mortgage banker originates a home loan, she actually creates two assets: the loan and the servicing rights. When the mortgage bank sells the servicing right to the loan, it historically has had a value of

2.75–3.25% of the loan.

1.50–2.25% of the loan.

0.75–1.25% of the loan.

0.25–0.50% of the loan.

Answer 1

Mortgage Servicing Rights or MSR is an agreement under which the original mortgage issuer outsources the rights or rather function(s) associated with servicing a mortgage to another entity. The entity known widely as a servicer charges a fee and conducts mortgage servicing functions such as collecting mortgage interest, principal repayments, tax liability payments, etc and remitting them further to relevant entities. The fee charged by the servicer is widely and historically in the range of 0.25% to 0.5 % of the loan amount.

Hence, the last option is correct.