The nation’s megabanks, which dominate the residential servicing landscape, experienced writedowns on the asset value of their MSR portfolios in the third quarter ranging from 10% to 35%, according to figures compiled by National Mortgage News.
Bank of America, which has been a net seller of MSRs the past 18 months, experienced the largest writedown at 35%. The bank, which has been de-emphasizing mortgage banking for two years now, values its portfolio at $5.24 billion compared to just over $8 billion a year ago.
Citigroup marked down the asset value of its housing receivables by 33% while Wells Fargo and JPMorgan Chase experienced negative marks of 11% and 10%, respectively.
George Christo, executive vice president of The Prestwick Group, noted that “MSR book values are coming down market-wide for a variety of reasons, most notably because of prepayment assumptions being very fast in this interest rate market where we are testing new note rate lows on an almost-weekly basis.”
He added that, “Moreover, QE3 does not provide much comfort that those lows will not be tested at still lower levels for another couple of years. Thus prepay speeds lead the market to a defensive crouch for MSR valuation in combination with a number of very real, value-affecting issues facing the servicing industry, including cost to service defaulted loans, prospective cost of compliance with GSE guideline changes or CFPB mandates (that are still not completely or specifically clear), repurchase obligations weighing on MSR’s in general, and Basel III compliance advance preparation.” (For complete analysis see the Monday paper edition of NMN.)
