Nation’s interest-rate pain is MSR market’s gain

Mortgage-servicing rights market continues to thrive in rising-rate environment

The pain in the housing industry caused by spiking interest rates isn’t shared by all sectors — specifically the mortgage-servicing rights (MSR) market.

The MSR market has made a strong showing during the first half of the year, despite the market tumult. Recently, two MSR sales offerings were announced by two separate advisory firms, which together are valued at more than $1.4 billion. 

In addition, a third MSR advisory firm says it now has a number of deals in the works, which together are valued in excess of $60 billion.

The Prestwick Mortgage Group, an Alexandria, Virginia-based MSR advisory and brokerage firm, served as the exclusive broker for a $618 million package of Fannie Mae and Freddie MAC MSRs that was put out to bid earlier this month. The package included MSRs for nearly 1,600 Fannie Mae mortgages, valued in total at $376.6 million and for slightly more than 1,000 Freddie Mac loans valued at $241.9 million.

The entire package of MSRs offers a 0.2504% average servicing fee on loans with an average note rate of 3.75%, according to the bid documents for the deal. No information was provided on the seller other than it is an “independent mortgage banker.”

The bulk of the underlying mortgages by count for the Prestwick MSR package, 1,171 loans, were made in Connecticut; followed by Massachusetts, 577; Wisconsin, 150; and Rhode Island, 143. The average loan balance for the entire MSR package is $275,146, with an average FICO credit score of 723 for the borrowers.

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New York-based Mortgage Industry Advisory Corp. (MIAC) also is out with two large MSR offerings this month involving a $4.8 billion loan pool and a separate $816.7 million package, both composed of Fannie Mae and Freddie Mac loans.

Nearly 62% of the loans by unpaid principal balance in the latter $816.7 million MSR package are Freddie Mac mortgages. The servicing fee for the entire package averages 0.25% with the average interest rate for the mortgages in the package at 3.059%, according to the bid documents. The average loan balance for the 3,644 mortgages in the MSR package stands at $224,112, with the average FICO credit score for the borrowers of 757.

“The portfolio is being offered by a mortgage company that originates loans with a concentration in Illinois and Minnesota,” according to the MSR package bid documents.

The bulk of the loans by count are in Illinois, 1,785; Minnesota, 1,229; and Arizona, 456. The sale date for the package “is negotiable,” according to the bid documents, with bids due by mid-June. 

For the $4.8 billion MSR offering, MIAC bid documents show 63% of the underlying loans are Fannie Mae mortgages. The average servicing fee for the package is 0.254% and 3.225% is the average interest rate for mortgages in the package.

The average balance for the 18,510 loans in the servicing pool is $259,248, with an average 762 FICO score for the borrowers. The largest geographic concentration of the loans to be serviced is in Texas, with 5,526 loans; followed by California, 3,294 loans; Georgia, 1,492; and New York, 1,415.

Information about the seller was not provided in the offering documents. Bids on the MSR package are due June 28.

Denver-based Incenter Mortgage Advisors also is staying extremely busy with MSR offerings, even if those deals are not in the public eye. Tom Piercy, managing director of Incenter, said the firm “is currently working on multiple deals totaling in excess of $60 billion that are not out for public auction.” 

As interest rates rise — with the Federal Reserve adding a 75 basis-point accelerant to the mix Wednesday — loan-prepayment speeds drop, due to diminished refinancing activity. That, in turn, amplifies the value of MSRs because they pay out over a longer period. 

Those dynamics sparked some major MSR bulk offerings during the first quarter of the year, as HousingWire has reported. The new deals surfacing in the second quarter, including the two recent offerings, continue the pattern of a strong showing in the MSR market, which is not only fostering deals but also helping to shore up the balance sheets of lenders holding the assets.

In addition to the new June MSR offering, Prestwick previously brought to market in the second quarter at least three offerings with bid due dates in April: a $1.6 billion Fannie and Ginnie Mae offering; a $520 million Fannie offering; and a $1.8 billion Fannie and Freddie package, which is being offered in conjunction with San Diego-based advisory firm Mortgage Capital Trading (MCT), offering circulars show.

In May, also in conjunction with MCT, Prestwick unveiled a “Texas/Southeast” offering of Fannie Mae MSRs valued at $1 billion.

MAIC also has been on a roll in the MSR space during the quarter. In addition to the most recent MSR package set for auction in June, MAIC unveiled five MSR offerings featuring Fannie Mae, Freddie Mac and/or Ginnie Mae servicing rights with bid due dates in April or early May. The MSRs being auctioned in those bulk deals are tied to loan portfolios with a total value of $12.8 billion — ranging in value per bulk offering from $1.83 billion to $4 billion.

Finally, beyond the $60 billion in MSR deals it is currently pursuing, Incenter earlier in the second quarter unveiled seven bulk MSR offerings involving Fannie Mae, Freddie Mac and/or Ginnie Mae servicing rights. The value of the loan portfolios tied to those servicing rights — which were auctioned off in either April or May — ranges from $1.96 billion to an eye-popping $12.94 billion across the seven deals — with the overall value of the MSR offerings totaling $35.3 billion.

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