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Nonbanks to see meaningful markup on MSRs, minimal for banks, say Piper analysts

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Nonbanks to see meaningful markup on MSRs, minimal for banks, say Piper analysts

Piper Jaffray analysts think nonbank mortgage servicers will see a meaningful markup on their mortgage servicing rights, pushing their tangible book value higher in the fourth quarter.

The analyst assessed the potential markups for mortgage servicers, after BOK Financial Corp. recorded a $37 million, or 18%, markup on its mortgage servicing rights. The Tulsa, Okla.-based company announced Dec. 14 that it is expecting its fourth-quarter pretax net income to drop by around $17.4 million because of a change in the fair value of its mortgage servicing rights.

Following the announcement, Piper Jaffray analysts assessed potential markups for other mortgage servicers with large agency and nondistressed portfolios.

The analysts noted that because of asset sensitivity and possible earnings volatility, all banks hedge their mortgage servicing rights. Therefore, they think that market should dismiss any near-term benefits that banks might record as a one-time event. But if rates remain high, they think the speed of mortgage payments will affect the servicing fees and lower amortization costs for banks.

In addition, they noted that nonbank originators or servicers are more sensitive toward markups on mortgage servicing rights as they don't typically hedge the MSRs because of liquidity and capital constraints. The analysts highlighted Ocwen Financial Corp. and Nationstar Mortgage Holdings Inc. and noted that these companies might see a material markup in their MSRs, supporting GAAP EPS and tangible book value in the fourth quarter.