- Mark Madsen
- May 15, 2014
A service release premium (SRP) is the payment received by a mortgage lender, such as a bank or retail mortgage lender (mortgage banker), on the sale of a closed mortgage loan in a secondary mortgage market transaction. The amount of SRP is generally based on the market value of the mortgage note, influenced by several key variables, such as interest rate, loan type, margin (for ARM loans). Also considered are factors such as the loan’s LTV (loan to value), the borrower’s credit score, the presence of private mortgage insurance (PMI), pre-payment risk of the borrower and other factors beyond the scope of this article. The calculation of the SRP involves the capitalized valuation of any interest rate differential between the subject loan’s interest rate yield and the then par rate for loans with similar attributes. Also included in the calculation of SRP are such factors as the perceived capitalized valuation of loan servicing rights associated with loans similar to the subject loan. Service Release Premiums may or may not be a positive amount. Until the subject loan is sold in the secondary market and the SRP (if any) is actually received by the mortgage banker, it is only an estimated figure.