In one sentence
The portion of a loan's interest retained by the servicer as compensation for administering the loan.
The longer version
When loans are sold or securitized, the servicer keeps a small slice of the interest, the servicing spread or strip, to cover the cost and effort of servicing. It is the economics behind the servicing function.
Servicing spread is a financial detail of loan sales and securitizations, and it underlies why servicing quality and scale matter to the parties who hold it.
Common questions
- What is a servicing spread?
- The portion of a loan's interest rate retained by the servicer as compensation for administering the loan.
- How is the servicing spread paid?
- It is withheld from interest collections before payments are passed to the loan's owner or investors.
- Is the servicing spread negotiable?
- It is set in the servicing agreement and varies by loan size, type and the servicer's duties.
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