The largest residential mortgage servicers will get even larger in 2018, benefiting from consolidation and the outsourcing of servicing rights acquired by companies without their own platforms.
There is already "vast concentration" among the top 10 to 15 servicers and that will continue in the next year, said Kevin Brungardt, the CEO of RoundPoint Mortgage Servicing Corp.
Not only will these companies growing through acquisitions in the market, they will also be the beneficiary of non-operating companies ramping up their purchases of MSRs.
Mortgage debt outstanding is expected to rise to $10.4 trillion at the end of 2018, from $10 trillion at the end of this year and $9.7 trillion as of Dec. 31, 2016, according to the Mortgage Bankers Association.
Real estate investment trusts like New Residential and Two Harbors have been acquiring MSRs, but lack the infrastructure to perform the function (although New Residential recently agreed to buy Shellpoint Partners).
"Where they're putting the servicing is the same suspects that are already in the top 10 to 15, so that's just increasing the operations" at those companies, Brungardt said.
RoundPoint services $75 billion, broken down between $52 billion in MSRs it owns and $23 billion it subservices.
He expects loan performance to continue to improve. "We're going to continue to see home price appreciation and continue to see GDP growth. The slack in the labor market is almost completely taken up," Brungardt said.
"At some point inflation is going to come on. I think the Fed is going to continue to flatten the yield curve by raising the short-end. All are good signs."
Servicers' costs will be lower because they will not be dealing with as many delinquent loans. But they benefit in other ways, he said.
"You're not taking on the brand damage, the reputational risk, the goodwill damage, all that stuff. Having homeowners with a lot of equity in the property, good employment situations, that's very good for the industry," Brungardt said.
Mortgage interest rates are projected to rise in 2018 and that will benefit servicers because of higher loan retention rates, said a report from Keefe, Bruyette & Woods analysts Bose George, Tommy McJoynt-Griffith and Eric Hagen.
Its outlook for servicing acquisitions varies by company. Ocwen is prohibited by regulatory actions or settlements to acquire servicing until sometime in 2018.
PHH Corp. is selling its owned MSRs to become a subservicer. That transition will limit portfolio growth over the next year, said KBW.
Nationstar's servicing portfolio should be near $550 billion by the end of 2018, from $533 billion on June 30 because of the onboarding of already announced MSR acquisitions, KBW said.
At the private mortgage insurers, which pays a servicer's claim after they foreclose on a loan, the "benign environment [should] persist over the near and medium term due to a combination of a strong economy and very strong underwriting," said KBW. "While there could be some noise around how each company reserves for the hurricane-related delinquencies, we do not expect a material increase in the ultimate claims paid."