Once the darling of bank balance sheets, mortgage servicing rights are the ugly duckling of depository assets. Large lenders that once prided themselves on creating massive servicing portfolios have suddenly stopped talking about economies of scale. Instead, they’ve come under fire from regulators and consumer advocates amid accusations of shoddy foreclosure and loss mitigation work.
Uncertainty about the level of capital needed to hold servicing rights has also made traditional buyers skittish about adding MSRs to their portfolios. Some of the aggregators who once aggressively bid to buy home loans on a servicing released basis exited the business altogether. Others scaled back their correspondent lending channels and lowered their MSR bids. The value of mortgage servicing rights plummeted.
Lenders, many of whom haven’t retained MSRs for more than a decade, are taking notice. Rather than essentially giving away the asset, many have started selling loans directly to secondary market agencies and retaining the servicing rights. Their hope is that the newly minted MSRs being created today, at low interest rates and with tighter underwriting than in the past, are poised to rise in value over time.
