Is a 20% Market Share Even Possible in Servicing?
A lot's been written in these pages about the aspirations of firms like Wells Fargo, Washington Mutual and Countrywide - the "big three" (so to speak) of the mortgage industry. Somewhere along the line each has professed or hinted that one day they'd like to have a servicing market share of 20%.
And at times it seems entirely logical - why shouldn't one, or all three of these well-managed firms, amass enough servicing rights that they can advertise to the world that they service one in every five loans in the U.S.?
At last check, WaMu was still No. 1 among servicers with $726 billion in housing receivables and a market share of 10.26%. Wells was second with $664 billion (9.38%) and Countrywide a close third with $644 billion (9.11%).
Each of these three "creates" servicing rights in two ways: they fund loans directly or through loan brokers, keeping the servicing for themselves, or they purchase closed loans from other funders and keep the servicing rights on these acquisitions as well. In years past, Wells and WaMu were both major buyers of "bulk" servicing packages, a strategy that allows an acquirer to grow its receivables base quickly. Countrywide, for the most part, has avoided the bulk market and grown its portfolio organically.
It's been said by some industry officials and experts that by 2005 (not too far away) the top five servicers will control most of the market. The argument, actually, is quite logical: servicing conventional loans is a capital-intensive, economies-of-scale-driven business that requires mass. Because of the capital needed to own and service loans, smaller players will be forced to exit the servicing arena.
We've seen this occur over the past 10 years with the most intense consolidation coming during the past five years. Right now, though, the bulk servicing market is dead in the water. Prepayment speeds have been so high that values are almost meaningless. Few major buyers are willing to step up to the plate.
That means if Wells, WaMu and Countrywide want to take their servicing aspirations "to the next level" (managers love that phrase - "the next level"), they must buy and buy big, really big. But there is nothing in the tealeaves to suggest this will happen.
Wells and WaMu have each taken their turns at being the respective mortgage "Pac Man" of the year. Both are done buying, at least, for now. Countrywide has never been a buyer of other franchises, except for a few minor deals here and there.
So, how can any of these three firms ever get to 20%? I submit to you they can't - at least not during the next 24 months.
There is one other problem as well - the dollar volume of outstanding mortgage debt (which affects market share calculations) is growing at warp speed. U.S. homeowners now owe mortgage servicers $7.081 trillion. A year ago they owed $6.305 trillion. That's a growth rate of 12.3%. Historically, mortgage debt has grown at a 6% to 7% pace.
Getting to 20% is a bit like running a three-mile race only to discover that when you get closer to the finish line the race has been increased to four miles, then five miles, then ...
Paul Muolo is executive editor of both Mortgage Servicing News and National Mortgage News. He can be e-mailed at: Paul.Muolo
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