2022 opens with a big MSR bulk-sale offering

A $10 billion package of mortgage-servicing rights is on the sales block in a market primed for robust deal activity ahead

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Denver-based Incenter Mortgage Advisors is in the market with a $10 billion bulk-sales package of mortgage-servicing rights (MSRs) tied to Fannie Mae and Freddie Mac loans.

The MSR offering involves 36,185 loans that are fairly evenly split between Fannie- and Freddie-backed mortgages. The weighted average age of the loans is 10.8 months, with an average interest rate of 2.898%, according to the bid documents. The average loan size for the bulk package is $276,596 — with a weighted average FICO credit score for the underlying loans of 766.7.

The seller is not identified in the offering, which indicates the deadline for final bids is Jan. 12. Incenter Managing Director Tom Piercy would only say that the seller is a “nonbank.”

“This is … an independent mortgage company that is looking to pare back its holdings of MSR assets on the balance sheet,” Piercy explained.

About one-third of the mortgages in the package were originated in California, Texas or Florida, the bid documents show, with Texas leading the pack by loan count with a 13.4% share (4,838 loans valued at $1.2 billion). California originations represent the highest share of loan volume, at 15.4%, or a current balance of $1.54 billion across 4,080 mortgages. Florida originations account for 9.6% of the loan count in the offering (3,486 mortgages) and 8.9% of the loan volume ($887 million).

Most of the loans involve single-family homes, — some $8.7 billion by loan balance — with the remaining loans by balance split between townhomes and condos. About a quarter of the loans (9,004) are purchase mortgages, or $2.5 billion by current balance — with the remaining loans falling into the refinancing “loan-purpose” category. Also, 91% of the mortgages by loan count involve owner-occupied properties.

“We didn’t cherry pick this,” Piercy added. “This is a cross section of [the lender’s] entire portfolio [being marketed for sale] simply to pare back the asset and take advantage of some of the market opportunities … as a result of where rates are today.”

As markets and the Federal Reserve continue to signal that interest rates are upward bound, that has the effect of depressing demand for home-refinancing loans, which in turn helps to bolster the value of MSRs. That’s because loan prepayment speeds slow when refinancing ebbs. 

Fewer loan prepayments via refinancing ensures that MSR assets — which represent a slice of the interest on a mortgage — will have a longer cash-flow life for investors. The average weighted servicing fee for the package, according to the offering documents, is 0.2570%.

Piercy stressed that a slow, steady rise in rates — as appears to be the trajectory now — is the ideal, given that significant rate volatility is not a positive for the MSR market. In addition to the MSR value push from a rising-rate environment, one industry source, who asked not to be named, also points out that the escrow balances associated with the loans being serviced also benefit from higher rates.

“My escrows right now are worth nothing or next to nothing,” the source said. “But if rates keep going up, at some point my escrows [generally deposited in bank accounts] are going to be worth something.”

In the case of Incenter’s current bulk MSR offering, the escrow balance for the underlying loans as of Jan. 5, 2022, totaled $44.1 million.

Year to date through Dec. 1, 2021, a total of $693 billion in agency mortgage servicing rights were transferred through sales transactions, of which nearly $550 billion involved nonbanks, according to mortgage-data analytics firm Recursion. That’s up significantly from the same period in 2020, when a total $385 billion in MSRs were transferred, with the bulk of those transactions involving nonbanks as well. The report encompasses transfer-transaction activity involving Fannie Mae, Freddie Mac and Ginnie Mae MSRs.

Incenter Mortgage Advisors also benefited from favorable market dynamics as last year came to an end. In November, it unveiled three MSR bulk-sales packages that were put out for bid involving primarily Fannie Mae and Freddie Mac loans that combined were valued at nearly $8 billion. 

In early October 2021, HousingWire reported on the details of two other bulk-servicing packages being marketed by Incenter. One offering was for a $6.1 billion Ginnie Mae servicing portfolio and the other for a $3.9 billion Fannie Mae and Freddie Mac loan-servicing portfolio. 

The MSR transfer market is expected to remain very active in the new year as market conditions continue to fuel the value of the assets. 

“We’re seeing [MSR] values trending up, and I’m pretty bullish on this for the foreseeable future,” Piercy said. “… It’s going to be a robust 2022.”

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