The MSR sector continues to shine, but there is a looming concern…

by Bill Conroy, HousingWire | October 24, 2022

If the economy worsens, loan delinquencies in Ginnie Mae mortgage servicing portfolios will accelerate.

The mortgage-servicing rights market just keeps on ticking even as the overall housing market takes a licking. And while depository banks that are fueling that growth, concern is mounting over Ginnie Mae MSRs held by nonbanks.

Mortgage advisory firms Prestwick Mortgage Group and partner Mortgage Capital Trading (MCT); Incenter Mortgage Advisors; and MIAC Analytics are out with a total of 10 bulk mortgage-servicing rights (MSR) offerings with bid-due dates in October. The 10 offerings together involve Fannie MaeFreddie Mac and Ginnie Mae loan pools valued collectively at $12.77 billion.

MIAC is handling one of those bulk offerings, one of the largest, valued at $2.44 billion and involving a combination of Fannie, Freddie and Ginnie MSRs.

Prestwick is marketing four separate deals, two in partnership with MCT, valued in total at $2 billion — which together also feature MSRs for single-family residential loan pools from all three agencies.

Incenter has the highest deal count and the largest deals by volume, at five offerings valued collectively at $8.33 billion, Together they involve MSRs for single-family mortgage pools across all three agencies. Two of those offerings, one an all-Ginnie package and the other a Fannie and Freddie bulk offering, each involve loan-servicing pools valued at $4.1 billion.

Over the first nine months of this year, banks have far outstripped nonbanks in buying up MSR packages. Banks have been net purchasers of MSRs, to the tune of $107.8 billion — compared with $51.1 billion for all of 2021, according to a report by mortgage-data analytics firm Recursion.

Tom Piercy, managing director of Incenter Mortgage Advisors, said many independent mortgage banks stockpiled huge volumes of low-rate loans in 2021, understanding that rates would eventually rise, and they are cashing in on the new rate environment — a climate that also is wreaking havoc on loan-origination volumes. In addition, banks who are now buying, he added, can take advantage of the product cross-selling opportunities through loan servicing and, more importantly, they can leverage the escrow float opportunities MSRs offer.

“The deck is stacked in favor of the depositories when it comes to owing MSRs, and that is because of what they can do with the escrow [accounts],” Piercy explained. “Banks can leverage these [escrow] deposits [using them as collateral to borrow] through the Federal Home Loan Banks to reinvest into higher yielding assets.

“And so that’s why banks have always been in a much better position to own the MSRs.”

Digging down deeper into the numbers, the Recursion report shows that over the first nine months of 2022, banks have been net buyers of Fannie Mae and Freddie Mac MSRs and net sellers of Ginnie Mae MSRs, while nonbanks are selling off Fannie and Freddie MSRs and still far outstripping banks in issuing and buying Ginnie Mae MSRs.

Read the rest of the article at HousingWire