The market for mortgage servicing rights has some unusual dynamics, one panelist at the Mortgage Bankers Association's Secondary and Capital Markets Conference said Monday.
"It used to be that the bulk market wouldn't even be attractive on an execution level if there was a billion or more. Now you're seeing very small trades of a couple of hundred million, maybe 500 to a billion," said Michelle Richardson, senior vice president at Plaza Home Mortgage.
The change in the typical dollar-volume size of trades in the bulk market is just one sign of how interest in MSRs has been departing from historical norms due to current market conditions, some experts say.
"There's still a tremendous amount of demand, yet we're in a 'higher than we have been in several years' rate environment and default rates are ticking up," said Cade Thompson, co-president and chief growth officer at
What lenders are thinking about in the MSR market today
In the recent past, concern about loans originated at higher rates potentially prepaying and mortgage performance worsening weighs on servicing rights values. But in the current market some originators want MSRs so they have an edge in contacting customers if rates drop.
"Folks are pricing for whatever their strategy is, and I think a lot larger companies have been preparing for potential recapture," Richardson said.
Lenders involved in servicing trades have been considering what the net best position for them is amid signs of mild pressure on loan performance from economic weakness, which could raise servicing costs and potentially lower rates.
Another consideration is that investing in servicing at high prices can extend a buyer's risk because the more they pay, the longer they may need to profitably hold the asset to make money from it.
Some companies "might actually buy and sell the same amount of servicing" based on the strategic value to the company or lack thereof, Seth Sprague, director of consulting services at advisory firm Richey May, said during the MBA conference panel.
In terms of default risk, Richardson said she sees it as concentrated in the market for Federal Housing Administration insured loans, which tend to be made to borrowers who may live "paycheck-to-paycheck" and are more likely to be hurt by
VA partial-claim bill moves forward
In other news related to distressed servicing developments, the MBA announced this week that
The bill passed the House on Monday in a move supported by both the mortgage banking group and the National Association of Mortgage Brokers.
Among the reasons for industry support is that while the VA has different considerations from other public entities that back mortgages such as the government-sponsored enterprises or the Federal Housing Administration, the new partial claim is similar to their equivalents.
"Our members that are in this space are comfortable with the structure like this, because it's in harmony with the partial claims that they have experienced with the other loan programs," Bill Killmer, senior vice president for legislative and political affairs for the MBA, said in an interview.
