Pricing exceptions are widespread in mortgage — and so are the regulatory risks

Read Now

The MSR market is exuberant — for all the right reasons

Deal volume in the mortgage-servicing rights market is expected to remain strong into the new year

home sales HW+

The MSR sales market is finishing out 2021 at a robust pace that market observers expect will continue into the new year, propelled by a rising-rate environment and anticipated tax-code changes.

As evidence, Denver-based Incenter Mortgage Advisors this month unveiled three new MSR bulk-sales packages that have been put out for bid that involve primarily Fannie Mae and Freddie Mac loans that together involve loan portfolios valued at nearly $8 billion. 

One MSR bulk-sale package involves 2,350 loans valued at $753 million, according to the bid documents. A high proportion of the loans in the offering were originated in Colorado and California — with only 15 loans backed by Ginnie Mae securities. Another MSR package being marketed by Incenter currently involves 2,537 Fannie Mae and Freddie Mac loans valued at $970 million — with the bulk of the loans originated in California. 

The third MSR package being marketed by Incenter also involves Fannie and Freddie loans, most originated in Texas, Washington, Colorado, Oklahoma and California. That MSR offering encompasses a total of 19,752 loans valued at $6.3 billion.

In early October, 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. 

Incenter Managing Director Tom Piercy said those latter two deals are expected to close by the end of November.

“The MSR market has been very good,” Piercy said. “The appetites from the buy side are very strong and deals that are being put in the market are getting done.”

Other examples of MSR activity include an $11 billion package of Ginnie Mae MSRs sold in the third quarter of this year to Florida-based Freedom Mortgage by Ann Arbor, Michigan-based wholesale lender Homepoint, according to filings with the Security and Exchange Commission. Homepoint executives confirmed in an earnings call earlier this month that the nonbank lender is back in the market with another MSR portfolio — estimated to involve a portfolio of $15 billion worth of Ginnie Mae-backed loans, based on SEC filings. That deal is expected to close in the fourth quarter of this year.

Another Michigan-based nonbank lender, Rocket Mortgage, revealed in its third-quarter earnings statement filed with the SEC that it sold MSRs on some 152,000 loans valued at about $58 billion during the period. Then, in November, the same SEC filings reveals, Rocket “purchased MSRs relating to certain single-family mortgages loans with an aggregate unpaid principal balance of approximately $9 billion and a fair market value of approximately $82.1 million.”

Finally, in late October HousingWire reported that an offering of Fannie Mae and Freddie Mac MSRs linked to a loan pool valued at nearly $2.2 billion was being marketed by The Prestwick Mortgage Group on behalf of an undisclosed independent mortgage banker.

Piercy said there has been kind of “a flurry of [MSR] activity over the last 30 days” in part due to normal fourth-quarter pressures, “as people are wanting to physically get something done or off the books and be able to have a sale during the fourth quarter, whether it’s for earnings purposes, or just balance-sheet management,” 

Also driving sales in the fourth quarter of this year are concerns over increasing capital-gains and other corporate tax hikes that are expected to kick in next year. Piercy says a good slice of MSR sellers are small to mid-size companies structured as sole proprietorships or limited liability partnerships whose owners are particularly focused on tax liabilities. 

“The tax-code structure is changing and rather than getting hit with the higher capital gains or ordinary-income rates in 2022, in anticipation they are going ahead and selling now,” he added.

In addition, as markets and the Federal Reserve continue to signal that interest rates are upward bound, that has the effect of increasing the value of MSRs. Rising rates slow MSR prepayment speeds because refinancing tends to slow in such an economic climate.

“We handle MSR transactions for about 50 to 100 institutions annually,” said John Toohig, managing director of whole loan trading at Raymond James. “The MSR market has definitely improved [in recent months] and values are better right now.

“Prepayment speeds are coming back down,” Toohig said. “A rising-rate environment is a boon for MSRs.”

Piercy added: “We have seen [MSR] prices now really escalate just in the last six weeks, and that has absolutely been part of the trigger for people to sell.” He also 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.

Piercy also said there are “two distinctive MSR markets, with big banks or super-regional banks generally being the successful purchasers on larger MSR portfolios involving conventional loans. “They don’t like Ginnie Mae servicing,” he added, which is a part of the MSR market “dominated by nonbank servicers.”

“It’s a robust market, and prices have improved,” Piercy stressed. “Again, the [MSR] activity has been driven by tax implications as well as taking advantage of the [MSR] price improvement [in a rising-rate environment]. 

“We’ve got a lot of capital committed to buy MSRs in the marketplace,” and that is expected to continue into next year, Piercy added.

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please