Servicing Values Increase But SRPs Are Still Anemic
Washington-While rising mortgage rates are crimping new originations, loan servicers are beginning to benefit from what could turn out to be a boom in the value of their receivables.
However, not all mortgage banking firms will benefit because the "servicing released premiums" offered by the nation's aggregators - Wells Fargo & Co. and Bank of America being at the top of the list - are still anemic compared to past years.
"All the major aggregators have pulled back their pricing," said Tom Piercy, a managing member of Interactive Mortgage Advisors, Denver.
Of course, the news about poor servicing-released premium prices isn't exactly startling. The SRP price cuts came fast and furious in the fall of 2008 when financial markets collapsed and rates plunged. The problem now is that mortgage bankers might expect a snap back in pricing that will never come.
According to investment bankers and servicing advisors, the average SRP is now roughly 100 basis points on GSE loans sold "servicing released." Before the market crashed it was between 145 and 175 basis points.
"The economic value of servicing is greater now than a few months ago," said Mr. Piercy but he isn't convinced that the largest buyers of loans on a "servicing released" basis will suddenly pay more just because rates are on the rise.
In turn, many mortgage banking firms (and even depositories) that gave up on retaining their servicing rights a decade ago are now contemplating re-entering the space because they can capitalize their servicing at a higher value - thanks to rising interest rates.
Glen Corso, a former mortgage insurance executive who runs the Community Mortgage Banking Project, an advocacy group, called current SRP prices "lousy." He noted, "There's a lot of griping on this from our members."
One solution is for small- to medium-sized mortgage banking firms to start servicing their own loans instead of giving away the servicing "strip" to buyers like Wells, BoA, Chase and others. But that might seem easier said than done. Fannie Mae and Freddie Mac are now taking upwards of 12 to 18 months to approve applications for new seller/servicers.
Also, as reported, both Fannie and Freddie have increased (or will soon) their minimum net worth requirements for seller/servicers.
Both GSEs declined to comment on the approval time for new seller/servicers. One servicing advisor, requesting his name not be used, noted, "They might tell you it will take 12 months to get approved but it could turn out to be 24 months."