5 mortgage servicing trends from Q2 data to watch

August 20, 2024 3:08 PM

A potential rate cut, economic shifts and policy developments have been reshaping mortgage servicing, and quarterly statistics can be a good way to measure their impacts.

From a "dislocation" in the single-family market to a spike in a multifamily performance indicator, numbers from some of the latest quarterly reports help quantify some emerging opportunities and risks.

Read on for data sets from the Q2 reports that serve that purpose.

Mr. Cooper illustrates a ‘dislocation’ in MSRs

Mr. Cooper's planned purchase of Flagstar servicing assets not only tips the scales further toward nonbanks dominating servicing, but also highlights a broader shift in the market.

Originators' financial woes and a bank capital proposal have created more selling interest overall, its executives noted in their latest earnings.

As a result of that trend and the Flagstar deal, the Mr. Cooper's portfolio has risen 79% from year-end 2022 to a pro forma $1.6 trillion.

"We anticipated the dislocation, we moved swiftly and decisively to capitalize on the opportunity, and now you see the results," Jay Bray, Mr. Cooper's chairman and CEO, said in an earnings call.

More may lie ahead. A Ginnie Mae nonbank capital rule goes into effect soon, and while there are variations week-to-week, forecasts suggest rates will trend downward long-term.

Pennymac’s portfolio segmentation quantifies its refi risk

Rate declines recently exposed a small but growing number of coupons to refinancing incentives.

That can be a risk in that it could lead to servicing runoff, but it also may be an opportunity to the extent a company also has an origination unit.

This means servicers need to be attentive to the composition of their outstanding book of business. They'll need to know where to focus customer outreach work, particularly in the event that rates fall to certain levels at which refinancing incentives rise significantly.

To this end, consider data from Pennymac's earnings on the unpaid principal balance of loans with a 5%-plus note rate. The number of these that it acquired or subservices for its real estate investment trust has almost doubled in the past year, rising to $175 billion from $89 billion.

"This population of loans consists primarily of recently originated purchase mortgages where the underlying borrowers will undoubtedly look to refinance when rates decline," said David Spector, chairman and CEO, during the financial services unit's earnings call.

Rithm, MBA metrics highlight importance of cost controls

Rithm reported its performing mortgage costs have fluctuated between $146 and $113 since the fourth quarter. These were at the lower end of the range in the second quarter and generally trended downward in the interim.

That's something that servicers across the board are going to have to watch more closely given that the latest Mortgage Bankers Association numbers show that while origination profitability is improving, servicing profitability isn't quite as strong as it was.

Industrywide, net financial income from servicing fell to $69 per loan in the second quarter from $82 the previous quarter and $94 a year earlier, according to the MBA.

Onity’s HMBS numbers show ‘2.0’ plan may impact this servicer

Onity has been recording some reverse mortgage securitizations and related borrowings on the liabilities and stockholder's equity portion of its balance sheet, which suggests that it could be impacted by a new option for them.

The numbers show that in the latest quarter, Onity recorded Home Equity Conversion Mortgage securitizations with a fair value of more than $8 billion, up from just under $7.5 billion a year earlier.

The pending Ginnie Mae pooling innovation known as HMBS 2.0 is one that reverse mortgage specialists like Finance of America also think could be advantageous if it moves ahead. Whether it does and how it affects the balance sheets of servicers with HMBS remains to be seen.

Fannie Mae’s multifamily REO count is the highest since 2013

When quantifying how the ongoing strain in the multifamily market is impacting that side of Fannie Mae's business, look to its real-estate owned count.

Supporting documentation released with its earnings shows the level of multifamily REO reported at the end of the period was the highest seen in over a decade.

There were 96 properties in Fannie Mae's multifamily REO inventory at the mid-year point, up from 61 last year. Inventory in this category hasn't been this high since 2013. That year, there were 118 properties in inventory. Post crisis, multifamily REO peaked in 2011 at 260.