The mortgage servicing rights market is booming as higher interest rates have given MSRs a cyclical boost. Lenders looking for new customers are motivated to buy these assets while a combination of liquidity needs and potentially restrictive policy proposals have put pressure on others to sell.
According to the Generic Servicing Asset MSR benchmarking tool from Mortgage Industry Advisory Corp. Additionally, there were 13 investors active in the government market, compared to just three or four who bought at a time last year, MIAC managing director Mike Carnes told attendees during a panel discussion at the Information Management Network Forum's Residential Mortgage for Maintenance rights in New York.
“The trade is healthy at the moment. There's a lot of capital out there. There are many companies that have to use this capital or they will lose it, ”Carnes said in an interview.
However, stakeholders are also closely monitoring the liquidity of the Ginnie Mae market to see if a proposal is pushed forward to set new capital constraints on non-banks. As a result, some may be more cautious about the market. This proposal is "harder and more draconian than Basel," said Chris Whalen, chairman of Whalen Global Advisors, referring to global standards for risk management and capital during a separate panel at the conference.
Additionally, there are concerns about one aspect of Biden's proposed tax plan – the abolition of a deferral of non-cash mortgage income from withheld MSRs – despite some expectations that it will eventually be resolved, noted Whalen. That could also dampen the purchase.
While some individual market participants may incorporate these regulatory uncertainties into their decisions about the MSR market, Carnes believes that they are less likely to upset the current balance of buyers and sellers in the market than the financial health of lenders.
“Most of all, what is most likely to trigger a new wave of sales is the need for profit,” said Carnes. "If margins continue to compress, interest rates continue to rise and issuance continues to decline, many companies will view these portfolios as piggy banks for a rainy day fund, but as long as capital is available and the pandemic is kept in check, there should be buyers."