14 for '14
An inside look at a special group of companies setting their sights on the coming year
Stewart Lender Services
Don't call it a comeback. At least, not yet — but there are signs of life in U.S. capital markets for private-label residential mortgages. A heartbeat has returned, after years of a flatline.
U.S. nonagency MBS issuance reached $18.5 billion through early November, according to data compiled by HousingWire. While that’s still a far cry from the 2006-2008 period — where nonagency issuance routinely topped $40 billion in just a single month — PLS issuance in 2013 is up nearly 45% from the year-ago period.
So it’s a slow, if not steady, revival.
And it’s a revival that appears as if it could ramp up quickly in a rising-rate environment — to say nothing of an environment where banks are increasingly going to find it difficult to lend outside of the coming Qualified Mortgage and Basel III frameworks.
For example, under Basel III, residential mortgages and mortgage servicing rights will carry 10 times higher capital risk weight on banking books, and (generally speaking) MSRs will have to be subtracted from Tier 1 capital.
Together with the Dodd-Frank Act requirements on retained risk in securitizations, U.S. banks will likely f ind that private-label securitizations are problematic. As a result, most will focus on the Qualified Mortgage-eligible lending that can be sold directly to the GSEs and/or insured via the Federal Housing Administration.
The result of this change? The mortgage lending business is already shifting toward nonbank financial institutions — capital sources that will look to fill in the gaps between consumer lending demand and QM standards.
It’s a major shift, and companies that can succeed in this environment will need to be looking to build up a strong presence in U.S. capital markets well in advance. And the smartest companies in mortgage finance are already doing just that.
A company on the move
Stewart Lender Services, part of title services giant Stewart Title, has been actively growing for some time now. In 2011, for example, the company completed a high-profile acquisition of a majority interest in REO services provider PMH Financial that brought more than $2.5 billion in real estate assets under management.
But it’s the company’s most recent bold move into the capital markets that makes this industry stalwart one to watch in 2014.
In September, Stewart announced it had acquired key assets of Allonhill — one the mortgage industry’s leading due diligence and risk management firms. The move was a prescient one, and one that signals a strong strategic expansion of the Stewart’s quality and compliance service offerings.
“With loan quality and compliance being in the forefront of industry concerns, we couldn’t be more excited to have some of the most well-known and experienced staff in the industry joining our operations,” said Jason Nadeau, group president of Stewart.
“Through a combination of the staff, industry-leading technology and Stewart’s resources, this transaction brings us tremendous strength at a time when this segment of the market is re-emerging.”
Is it ever.
The mortgage markets are seeing more activity in the capital markets sector than they have in years, as private markets are looking to begin filling in gaps in lending demand with new products and market participants are looking toward a future potentially without the GSEs.
You didn’t have to look any further for proof of this than the most recent ABS East conference in Miami Beach, where more than 5,000 financial professionals gathered this year — the second largest attendance in the venerable securitization industry’s history. More than 60% of the content at the show was dedicated to residential mortgages.
As a component service provider for lenders, servicers and investors, Stewart now offers a complete range of services — spanning origination support, loss mitigation, REO title and settlement, REO asset management, capital markets services, default title, and more.
Very few companies can offer the same level of services across the mortgage value chain—and if anything, Stewart seems poised to benefit from the many changes set to affect the mortgage industry in 2014, and beyond.
Editor's note: The companies participating in this Special Section sponsor their content. Each company tells a unique story, one they wished to share with HW Magazine readers and the industry at-large.