Retreat Capital Management announced Tuesday that it will lay off 73 employees at its facility in Irving, Texas, in October.

This type of announcement is becoming all too familiar in the servicing sector, where firms are feeling the pinch of falling servicing volumes and the threat of Basel III changing the servicing landscape altogether.

In the first week of August, Bank of America (BAC) informed the state of Pennsylvania of its plan to cut 209 mortgage servicing-related jobs at a Pittsburgh facility, noting the cuts come at a time when BofA is achieving more success in reducing its portfolio of delinquent mortgage customers.

"Compared to peak levels in 2011, today we have fewer than half the numbers of customers who need the specialized programs and support of this team," said Jumana Bauwens, a BofA spokeswoman.

Back in February, JPMorgan Chase (JPM) claimed it would reduce mortgage staffing levels by 13,000 to 15,000 over the course of the next year. Currently, JPMorgan is in the midst of slicing 450 jobs in its Florence, S.C., office and 730 positions in San Diego.

So why is the servicing space seeing so many layoffs?

Basically the housing market is recovering and fewer loans need servicing. This is good news for the market and homeowners, but a hurdle for employees working in mortgage servicing.

BSI Financial CEO Gagan Sharma told HousingWire that a lot of service providers that were exposed to large banks, which were selling distressed loans, are laying off because their customers don’t need servicing.

"Some of the banks have been disposing of their distressed assets, and as that pace is continuing, assets are moving away from servicer providers to those big banks," he said.

On the specialty servicing side, as firms continue working on legacy assets, there will be fewer loans left by the end of that process.

On the new originations side, we’ve seen a lot of originators obtain servicing. According to Sharma, the consolidation of firms is not as much of a likely scenario. There are going to be a lot more servicers and focus the focus could shift to the new originations side, he added. "There’s going to be a great deal of diversity because of that," he explained.

With the implementation of Basel III right around the corner, a shift in the landscape for banks holding mortgage servicing rights could take place. For many, the fear of Basel III driving MSRs to non-banks is great, although many specialty servicers could see their business volumes increase as a result.

“Basel III is definitely going to have an impact,” Sharma noted. The Basel III proposed guidelines threw some financial institutions for a curve by stipulating that the value of MSRs can only account for up to 10% of common equity when determining a bank’s Tier 1 capital requirements. This alone had market analysts anticipating an MSR sell-off.

MSRs are now somewhat less attractive on bank balance sheets, Sharma admitted. Pricing is going to evolve as a result. Because of Basel III, pricing is going to be lower, Sharma concluded.

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