U.S. nonbank mortgage servicers have witnessed an increase in M&A activity, a trend Fitch Ratings believes is likely to continue through the medium term.
Ocwen Financial Corp.'s recent acquisition of PHH Corp. was part of that trend, and although consolidation will provide some benefits to nonbank servicers, it will not lead to significant changes in companies' credit profiles, Fitch said.
The rating agency said the issuer ratings in the sector will remain limited by regulatory and policy challenges, inherent business-model risks and liquidity and capital constraints. However, scale achieved through consolidation, along with potential offset to portfolio runoff, can improve operating efficiencies, it added.
The rating agency added that the costs of servicing mortgages have continued to increase and consolidation can help spread costs over a larger-scale operation.
Fitch also said the independent nonbank servicers remain the most vulnerable to rising costs, which indicates that nonbank servicers that own origination platforms or tie-ins with large mortgage aggregators may fare relatively better over time.
