A pair of major hurricanes that struck the U.S. in the third quarter slowed deals for mortgage servicing rights for a time, but the acquisition market has since rebounded, according to one industry player.
The period following hurricanes Harvey and Irma saw fewer properties coming to market as loan servicers worked to determine which properties in federally declared disaster areas had meaningful damage, said Matt Maurer, managing director at MountainView Servicing Group. Servicing deals for Government National Mortgage Association-backed loans were particularly affected by natural disasters in the quarter, he said in an interview.
"We had to negotiate additional protections for buyers of [Ginnie Mae] loans in FEMA-declared disaster areas in order for those deals to be completed," he said.
Beyond the impact of the storms, Ginnie Mae mortgages maintained a unique appeal to certain servicers heading into the fourth quarter, including to New Residential Investment Corp. CEO Michael Nierenberg cited the Ginnie Mae license as one of the key benefits for the deal to acquire Shellpoint Partners LLC in a transaction estimated at $190 million.
Although bringing on Ginnie Mae mortgages exposes servicers to risks like those from the third-quarter catastrophes, New Residential Investment would welcome growth in originating and servicing Ginnie Mae loans, Nierenberg said during a Nov. 29 conference call to discuss the Shellpoint deal.
"I think we're comfortable pricing the risk, but [it has to be] commensurate to what we expect the returns to be," he said.
Outside of the disaster areas, MountainView saw strong demand for MSRs during the quarter, with deals executed at or near consensus fair value, Maurer said. Deal values have come back down to reasonable levels now that buyers are not expecting rapid interest rate hikes, he said.
"Today's market is more balanced, healthy, and in my mind, more sustainable," he said.
With yields in the high single digits to low double digits, servicing rights remain attractive assets for both banks and nonbanks, Maurer said.
Wells Fargo & Co. continued to be the largest bank holder of mortgage servicing assets by a wide margin, with holdings valued at $14.74 billion as of Sept. 30, according to an S&P Global Market Intelligence analysis. JPMorgan Chase & Co. had the second-largest bank portfolio of MSR assets at $5.74 billion.
Wells Fargo made one of the largest acquisitions of the asset class during the quarter when it purchased $51 billion worth of rights from Seneca Mortgage Investment. The bank considers mortgage servicing an attractive core business, one executive said in a statement announcing the deal. Wells Fargo grew its MSR assets by 3.9% during the quarter, while the industry as a whole increased holdings by 1.2% compared to the second quarter.
M&T Bank Corp. increased its mortgage servicing assets by 2.0% during the quarter to $226.5 million. CFO Darren King on Nov. 3 lauded the income source that does not tie up capital.
"But it's a stream of fee income that's very consistent ... [very] predictable and a decent return," he said during a conference presentation, according to a transcript of his remarks.
Nationstar Mortgage Holdings Inc. has been among the nonbank companies growing their mortgage servicing business in recent years. It expects to end the year with more than $500 billion in servicing rights, Jay Bray, the company's chairman, president and CEO said Nov. 2.
Nationstar brought in $58 billion worth of MSR assets during the third quarter and was on track to add $44 billion during the fourth quarter, Bray said during a Nov. 2 earnings conference call, according to a transcript. Opportunities to buy large servicing portfolios are scarce, and bidding for those servicing loans backed by government-sponsored entities like Freddie Mac has become more competitive, so Nationstar has been less active in acquisitions, he said. The company does see opportunities in sub-servicing, or servicing for companies that own the servicing rights, he said.
"There're still definitely pockets to play, and we gain a lot of traction in the sub-servicing space," Bray said.
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Commercial banks, savings banks and savings & loan association report information on mortgage servicing rights and other intangible assets on Schedule RC-M while holding companies report this information on Schedule HC-M, which can be accessed under the Regulatory Financials section of a company's Briefing Book page on the MI website or in MI office.