End of the Servicing Behemoth Era? Not Quite

Conventional wisdom dictates that the era of the servicing behemoths is over, and that no companies will dominate mortgage collections the way the "Big Four" of Countrywide, Chase, Bank of America and Wells Fargo did before the housing crash.

But that might not be the case quite yet.

It's true there no longer are $2 trillion servicers, as Wells was back in the day. And it's also true that nonbank servicers have advanced into the ranks of the top 10 (Nationstar, Ocwen Loan Servicing and Walter Investment Management), making for quite a non-traditional leaderboard. But Wells has quietly moved into a commanding market share twice its nearest rival Chase, and the top five servicers control more than 56% of the market, much as they did in the old days, according the data from NMN's MortgageStats.com.

Looking at industry niches shows even more commanding market shares. In Ginnie Mae servicing, Wells handles more than twice as much volume as second-ranked Chase. And in commercial servicing, one firm, PNC Real Estate (Midland Loan Services) has an amazing 82% of the market, nearly 10 times its closest competitor, Walker & Dunlop.

Will this domination continue? It depends. Jay Brinkmann, principal at BrinkEcon in New Orleans and former chief economist of the Mortgage Bankers Association, said the current top three have shed a lot of servicing out of their retail footprints. But, he added, Wells, Chase, and Bank of America remain interested in adding servicing to their footprints and growth will depend on how much servicing they generate in-house or through acquisitions.

But the nonbanks, which have come on strongly in recent years and are chasing the big bank servicers, have their own hurdles to face. The chief one is regulatory attention.

"How much can they grow in the current regulatory environment?" Brinkmann asked.

As of the second quarter of 2014, Wells Fargo commanded $1.8 trillion in servicing, according to MortgageStats.com. That's down 3% from the second quarter of 2013, but still represents gains on Chase and B of A, which lost a higher percentage of servicing during the period. Chase dropped 8% to $980 billion, while B of A continued to shed servicing rapidly, down 23% to $760 billion.

Despite the surge in non-traditional servicers, the most robust of them, Nationstar Mortgage of Lewisville, Texas, still has only half the portfolio of third-ranked Bank of America, which has been dumping servicing from its disastrous acquisition of Countrywide for years. Nationstar had $380 billion of servicing at the end of the second quarter to come in fourth, growing a hefty 19% in a year.

Even though it is a reduced universe (commercial and residential servicing currently is estimated at about $8 trillion, down from more than $10 trillion at the peak), the top three still have a dominating 46.4% share.

In Ginnie Mae servicing, Wells continues to reign supreme. Its $415 billion of servicing as of Sept. 30 is more than the next seven Ginnie servicers combined. Ginnie Mae's most recent uncollected principal balance table shows about $1.5 trillion as of October. That would mean Wells controls more than a quarter of the market. (Chase and B of A are ranked second and third in this category, as well.)

In commercial servicing, longtime leader PNC had $385 billion in servicing at the end of the second quarter, or an 82% share of a total market estimated at $467 billion. The only big gainer was fifth-ranked Jones Lang LaSalle Operations, up 83% in a year to $4.6 trillion.

The influence of defaults on servicing should continue to slow. Brinkmann noted delinquencies are down and foreclosure numbers are falling, albeit slowly. Impact "depends on what the economy looks like in 2015-16," he said.

Brinkmann thinks the first half of 2015 will be robust, "but if there's a slowdown in the second half, Federal Housing Administration and prime servicing could move into default. That's if we see a real backup in the economy."

According to the most recent default numbers from the MBA, delinquencies have scaled back to precrisis levels, with delinquencies and foreclosures each falling more than 50 basis points from Sept. 30, 2013 to Sept. 30 of this year.

Mark Fogarty, Editor at Large at National Mortgage News, brings more than 30 years of experience to his analyses of the mortgage market.