Share Growth Is Elusive
It's a tale of two mortgage banking worlds these days: production rocks and servicing stinks.
Thanks to the production boom of the past 24 months, lenders are making money hand-over-fist, but many top ranked servicers (which also tend to be top ranked funders) are having a hard time growing their market shares.
When the tidal wave of servicing runoff and impairment charges will end is anyone's guess, but it likely won't happen until interest rates - mortgage rates in particular - begin to rise by at least 100 basis points.
Then again, as this issue of Mortgage Servicing News went to press, there appeared to be little likelihood that the Federal Reserve would hike interest rates. In fact, if anything, the central bank has made public comments indicating that it is more concerned about deflation than inflation.
Moreover, some Fed watchers anticipate more rate cuts between now and the fall which would send the overnight Federal Funds Rate below 1.25%. If that happens, mortgage rates would follow (to some degree) and prepayment speeds would accelerate even more - as would servicing runoff.
All of this would be great news for residential lenders, but not so good news for servicers.
Thanks to the never-ending refinancing binge, many of the nation's top ranked servicers are continuing to see their market shares stagnate.
According to first-quarter survey figures compiled by Mortgage Servicing News, the top 10 servicers as a group had a market share of 51.01% at the end of March, a slight increase from year-end, but a decline from the same period a year ago.
In fact, the top 10 - compared to the same quarter a year ago - appear to be losing market share. (The top five are in the same boat as well - see tables.)
According to figures compiled by MSN and its affiliate, the Quarterly Data Report, the top 10 had a 53.74% market share at March 31, 2002.
Market share figures are calculated by dividing the housing receivables of the top 10 by the dollar volume of outstanding one- to four-family mortgage debt.
The 53.74% market share figure for 1Q 2002 is an all-time high for the top 10.
It has been difficult for many top ranked servicers to grow their market shares because of the refinancing boom and the resulting servicing runoff. Aside from a few franchise-related mergers, the secondary market for large, bulk servicing packages has been weak or nonexistent.
It's anticipated that once the refi boom ends, the servicing side of the business will consolidate even more and the top ranked firms will gain at the expense of midsized and smaller firms.
At the end of March, Washington Mutual, Seattle, ranked first among residential servicers ($728 billion/market share of 11.55%), followed by Wells Fargo Home Mortgage, Des Moines ($580 billion/9.21%), Countrywide Home Loans, Calabasas, Calif. ($502 billion/7.96%), Chase Home Finance, Edison, N.J. ($432 billion/6.85%) and Bank of America ($257 billion/4.08%).
The top 30 servicers, as a group, had a 62.68% market share at the end of March. MSN estimates that there are $6.566 trillion in outstanding one- to four-family loans in the U.S. This includes both first and second liens.
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