U.S. Bancorp may sell off parts of its servicing portfolio

U.S. Bank's corporate parent is contemplating shedding some servicing as the company weighs strategies that would help improve its capital position.

Chief Financial Officer Terry Dolan mentioned the possibility when asked about ways the bank might optimize its risk-weighted assets during a fourth-quarter 2022 earnings call with analysts.

David Paul Morris/Bloomberg

"We have a sizable mortgage servicing rights portfolio, we'll take a look at selling portions of that where that makes sense," he said in the fourth-quarter 2022 earnings call.

U.S. Bank has numbered among depositories with the largest portfolios, ranking fourth in the final quarter of 2022, according to this publication's MortgageStats data.

Other large banks have reported that they've been selling servicing.

Truist Financial, which ranked third in the MortgageStats rankings, reported an MSR sale in its fourth quarter earnings and has generally signaled interest in distancing itself from home loans. It recently announced a departure from mortgage bond trading and sales.

Wells Fargo, which ranked No. 1 in the MortgageStats ranking of bank MSR holders, has been selling servicing in line with its exit from correspondent lending.

Servicing rights to the cash-flows from mortgage payments can be attractive to banks as a key customer touchpoint, but MSRs also have a relatively high risk-weighting that can prompt sales.

A $50 billion sale that Wells revealed earlier in its fourth-quarter earnings call involved loans serviced for others in line with its exit from the correspondent channel. Correspondent lending involves the sale of mortgages from one company to another.

Servicing has generally become more concentrated at nondepositories in recent years and sales by banks could intensify that trend.

However, servicing brokers to date have reported that there has been a mix of bank and nondepositories on both the buy and sell-sides of the market this year.

Nonbanks haven't generally had risk-weighted capital requirements like depositories. But Ginnie Mae, an arm of the Department of Housing and Urban Development that insures mortgage bonds, plans to add some at the end of 2024 for servicing.