The change in the rate environment has revived a focus on servicing this year for originators, which may account for some of the current merger and acquisition fervor.
Not only has
"While lower rates and tighter spreads supported improved sentiment entering the year, the recent move higher in rates has reinforced the view that the recovery is likely to remain gradual," Bose George, Francesco Labetti and Graham Bundy from KBW said in a report.
That has renewed servicing's importance as a source of new business and customer retention after a brief uptick in refinancing from lower rates earlier this year.
Retain or release?
In the current environment, deciding to sell mortgage servicing rights requires careful consideration, Larry Goldstone, president of capital markets and lending at BSI Financial Services and moderator of a recent industry panel on the topic, said in an interview.
"You have to make the loan, and then you have a fairly high commission structure that causes your costs to increase as well. Then you sell the servicing, and that customer goes away," Goldstone said at the Mortgage Bankers Association's secondary and capital markets meeting.
However, not every lender has the scale and risk management resources to handle servicing, in which case originators may need to examine what type of sale arrangement for related rights or assets may be their best option.
"Somebody's going to take it, so you may as well get paid for it," David Burruss, sales director at Mortgage Capital Trading Inc. said during the discussion.
M&A insights
While the aforementioned trends around rates and recapture value have been part of what's driving a wave of large lenders to acquire servicing entities recently, there are some differences in the circumstances of each, panelists said.
In the case of the bidding war between CrossCountry and United Wholesale Mortgage for
"CrossCountry is a buyer of servicing, is a large originator of servicing, and has been looking to bring servicing in-house and manage its own platform," he said in an interview. "UWM is doing the same thing, they've already pretty much created their platform internally, so they're looking to buy the portfolio.
One aspect of
Rocket Mortgage's acquisition of Mr. Cooper and some of the other deals are making some of the companies involved more like depositories in at least one way, according to Seth Sprague, director of consulting services at Richey May, another member of the MBA conference panel.
"It's interesting to see these large depositories acting like a bank and talking about fee income," he said. "Fee income is very valuable for a bank."
While servicing looks valuable to all these acquirers in various ways right now, Sprague reminded attendees at the MBA conference that rate and credit cycles in the mortgage market tend to turn eventually, making it likely things will change at some point in the future.
"So servicing is cool again," he said, but then added after a pause that this only lasts "until loans go delinquent and then it's not."
