If rates drop further than they had recently, servicing's value as an asset could be under pressure, but lenders should think twice before selling it even if that happens, one speaker at an industry meeting said.
Competition for customers is fierce, so those who don't retain servicing or make buyer agreements that allow for
"I don't see a way forward for originators who don't have a way to hold onto the asset," Zenner told attendees at Information Management Network's Mortgage Servicing Rights Forum, noting that it's something Rate has discussed with companies that are acquisition prospects.
The emphasis
"The risk isn't in the economic model," Zenner said.
Although rates dipped in the third quarter, their direction
"I do think rates will go lower," Zenner said.
Even if they do, a lot of pre-existing first-lien mortgages will remain largely insulated from refinancing risk unless there's a significant rate drop due to a surge in unemployment. Origination activity is on track to pick up but will remain shy of 2019-2020 levels.
Roughly 65% of the combined Fannie Mae, Freddie Mac and Ginnie Mae universe of mortgages have interest rates of 4% or less, according to Mike Carnes, managing director of MSR valuations at MIAC Analytics.
Regarding performance pressure, delinquency concern has been concentrated in a small number of recent Federal Housing Administration-insured loans with coupons in the 7% range, Carnes said. These have had delinquency rates as high as 16-18%.
There are also delinquencies in a growing number of loans where taxes and
He warned that while some investors might perceive the outsized float from large escrow payments as advantageous, it may not look as attractive if it's not available for very long.
Similar to how repetitive refinancing can have diminishing effectiveness over time, Carnes noted that burnout can result from multiple recapture efforts targeting the same loan.
While this environment creates hurdles for small to midsized lenders and servicers who lack capital in particular, there are some roles they could play the panelists said.
It's not "game over" for these players, but they are on a challenging path, Zenner said.
Ginnie Mae's risk-based capital rule will be one source of difficulty for them, said Carnes, noting that while the agency is offering
Companies that are purely investors in MSRs will be looking for smaller subservicers to handle operations with having to hold the asset, said Jonathan Chao, co-founder and CEO of Haven Servicing, noting that these may be moving toward more of an "Uber-like" model.
Chao also foresees more automation of functions that give borrowers more of a feeling of control and visibility into escrow accounts, with access to services that allow them to do things like appeal taxes or compare insurance rates. Automated recapture efforts also are growing.
One technology-driven trend Carnes foresees gaining momentum next year is the transformation of due diligence services as artificial intelligence is increasingly applied to that part of the business.
"AI is going to make really quick work of due diligence," he said.
