Servicers these days face a choice: sell servicing released or retained? The servicing-released option has gained enough traction that GNMA president Ted Tozer is worried about having too few Ginnie Mae issuers (the little guys are selling FHA and VA product servicing-released to the big guys).
An interesting session at the recent New England Mortgage Bankers Conference in Newport, R.I., shed some light on the released/retained divide.
Rob Kessel, managing partner, Compass Analytics, San Francisco, pointed out that strategic and economic considerations both come into play when making this key decision.
Servicing-retained, for instance, has the strategic advantage of keeping customer relationships and boosting franchise value, while servicing-released frees up cash.
On the economic side, servicers should compare secondary execution for both alternatives, analyzing factors such as the servicing fee, loan price, servicing release premium, tax differences, hedge costs and others.
It’s not an exact science, said Kessel, as these analyses are going to vary from lender to lender and even day to day.
Dean Demeritte, executive vice president of Phoenix Capital, Denver, said the servicing market currently “remains heavily constricted.”
Open auctions “are the exceptions rather than the rule. Distressed portfolios “are still the majority of closed transactions.”
Subprime product is seeing the most demand, he said, while co-issue and flow takeouts are still scarce.
“GNMA product remains very difficult to move in either bulk or flow,” with the VA “no-bid” policy impeding deals.
Hold/sell analysis variables include the holder always knowing if the selling value is greater than the economic value, he said.
Much has been made of the recent possibility of a deconsolidation of the servicing business, and these retain/release decisions could have something to do with that.
A small mortgage bank selling servicing-released to a bigger mortgage bank would tend to add to consolidation, not deconsolidation.
Deconsolidation generally tends to be a better thing for the mortgage market.
More players spark more creativity and more options for customers and business partners.
