Service release premium (SRP) is compensation paid to a lender when they originate a loan, fund it in their own name, and then sell both the loan and the right to service it to an investor or aggregator. Understanding SRP is critical for anyone working in the correspondent channel, where pricing and profitability depend on it directly.
What Servicing Rights Are Worth
Mortgage servicing rights (MSRs) represent the right to collect monthly payments, manage escrow accounts, and handle borrower communications for the life of the loan. Servicing generates a stream of fee income. When a correspondent lender sells a loan and releases the servicing rights, they are selling that income stream along with the note. The buyer pays a premium for it, which flows back to the originator as SRP.
How SRP Is Calculated
SRP is expressed as a percentage of the loan balance. The exact SRP on any loan depends on the note rate (higher rates generate more servicing income, so higher SRP), loan type (conventional, FHA, VA have different SRP rates), and current market conditions for MSR trading. SRP tables are typically provided by aggregators and change with market conditions. A conventional loan at a note rate well above current market may generate SRP of 1% to 2% or more.
- ✦Higher note rate: generates higher SRP because the servicing income stream is more valuable
- ✦FHA and VA loans: servicing has government backing; typically command strong SRP relative to non-QM
- ✦Non-QM loans: SRP is lower because MSR buyers for non-QM are a smaller market with more risk premium
SRP vs. Wholesale YSP
Brokers operating in the wholesale channel do not receive SRP directly. SRP is captured by the wholesale lender, who accounts for it in their rate sheet pricing. Correspondents receive SRP as part of the loan sale settlement. This is a key reason why the correspondent channel can be more profitable per loan than wholesale brokering, assuming sufficient loan volume to fund independently.
Aria can help you understand how SRP differences across loan programs affect net revenue per loan and which channel is optimal for a given business model. Ask at vicariointel.com.
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