JPM Morgan Exits Bulk Servicing Market Too

JPMorgan Chase & Co. - which in years past has been one of the largest acquirers of residential servicing rights - said it will no longer be a buyer of "bulk" servicing packages from its correspondents. The edict goes into affect January 16, which is also the cutoff for its approval of loan packages submitted to it by mortgage brokers. Two days ago news broke that Chase (the name of JPM's mortgage division) was shutting down its entire wholesale division, the largest in the nation. A company spokeswoman said the bank would continue to buy mortgages from correspondents, which include non-bank lenders and depositories. At press time, the spokeswoman had not commented on its exit from servicing acquisitions, which include "forward" and "seasoned" bulk packages. Jeffrey Levine, managing director of Milestone Advisors, Miami, said JPM's decision to avoid bulk servicing purchases "may be a sign that they're being more selective on who they're dealing with" as a way to limit counterparty risk and allocate more capital to servicing generated by their bank and mortgage company retail customer base. Retail loans historically have performed better than third-party originations and offer higher cross-sale value, he said. As a correspondent buyer of mortgages, JPM usually buys the servicing rights along with the loans. As the mortgage crisis has worsened, few large banks have bought bulk servicing rights which represent the servicing "strip" of an underlying pool of mortgages. Fannie Mae/Freddie Mac loans carry an average servicing fee of 25 basis points, though it can vary depending on the arrangement with the seller/servicer. Investment bankers who perform advisory work have identified three firms as being the largest buyers of bulk servicing rights the past 12 months: Chase, Citigroup, and Wells Fargo.