New Incenter and Prestwick MSR offerings show trading volume remains robust

Two advisory and brokerage firms active in the Mortgage Servicing Rights (MSR) market recently unveiled three new mortgage service offerings for agency loan portfolios totaling $4 billion.

The new deals are a sign that MSR trading continues to be healthy, although sources close to the market say the momentum driving MSR sales has changed since the start of the year – prices for MSR packages are now plateauing .

Based in Denver Incenter Mortgage Advisors is currently on the market with a bulk service offer for a ginnie mae loan pool consisting of 7,339 mortgages worth $1.45 billion, with submissions due August 16. service fee set at 0.3656%.

Incenter is also negotiating a Fannie Mae and Freddie Mae wholesale service offering involving a loan pool also valued at $1.45 billion, with offers due August 10. The package includes a total of 6,024 loans – with origins from California, Texas and Florida leading all states in volume. The weighted average interest rate of the mortgages in the group of loans is 3.126%, with a service charge of 0.2512%. Seller information was not disclosed.

Additionally, the Alexandria, Va.-based company Prestwick Mortgage Groupwith its strategic partner based in San Diego Mortgage capital negotiation (MCT), released tender documents for a wholesale services offering involving a $1.1 billion Fannie Mae and Freddie Mac loan pool, with bids due August 17 . The 5,590 mortgages in the loan pool to be managed have a weighted average interest rate of 3.371%, with a service charge of 0.25%. According to the tender documents, which describe the seller as an “independent mortgage banker,” the top three states by volume for fixtures in the package are Florida, Georgia and North Carolina.

Last month, Incenter and Prestwick also unveiled four other Mortgage Servicing Rights (MSR) offerings for agency loan portfolios which, combined, are valued at approximately $3.7 billion – with offers for the offers scheduled for the end of July. Prestwick, along with its strategic partner, MCT, has released tender documents for two separate MSR offerings involving agency loan portfolios valued at $1.85 billion in total. Earlier in July, Incenter also launched two large MSR offerings, which are tied to agency loans worth $1.84 billion.

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MSRs gain in value as interest rates rise, in part because rising rates cause mortgage refinancing to slow. This reduces mortgage loan prepayment delays, which increases the effective long-term return on service fees associated with these loans.

According Kroll bond rating agency. Piercy said MSR volume available for sale reached historic levels in the first half of the year and continues to be strong.

However, he added, since “mid-May we started to see the market pull back a bit [on pricing for deals] because of the volume” and because the rise in rates has reduced mortgage prepayment periods to a low level. Lower prepayment speeds help drive up MSR values ​​and therefore prices, but once prepayment speeds bottom out, this pricing accelerator also dissipates.

“We pushed lifelong CPR [conditional prepayment rate] down to the lowest possible,” Piercy said. “The minimum lifetime prepayment rate should be 6% to 8% of the CPR, just because of death, divorce and moving.

“So when you hit this floor, where we are, there’s no way you can really get there. [down further].”

Yet other factors continue to keep the MSR market active and attractive to sellers and buyers alike, Piercy explained. Chief among them is the continued uncertainty in the market about the evolution of inflation and interest rates, as well as the sharp decline in mortgage lending, especially refinancing, due to the dramatic rise rates compared to 2021.

These market challenges are creating potential or actual liquidity issues for some lenders and selling MSR may help create additional liquidity.

These market realities, coupled with declining but still high MSR prices, have helped maintain healthy trading volume, Piercy explained. In fact, from 2022 through the end of July, Incenter Mortgage Advisors had traded a total of $180 billion in MSR – based on the value of the loan portfolios involved.

“The volume isn’t slowing down,” Piercy added. “There are a lot of deals going on that even advisors don’t see, and if we don’t see it, you probably don’t.

“So there are a lot of these discussions taking place. And we still see a steady flow of transactions.

Piercy said many lenders and other entities holding MSRs were selling in the first half of the year to take advantage of the historic rise in MSR values, which continued to soar as rates rose. However, MSR valuations have recently started to pull back slightly as high trading volume persists even as prepayment speeds have bottomed out – meaning “buyers may become more selective,” Piercy explained.

This momentum is driven, to a large extent, by conservative balance sheet management in the face of a period of uncertainty in the housing industry.

“Now they [holders of MSRs, such as nonbanks] are cautious and want to store cash and convert it to cash,” Piercy said. “Now, while there is still an active [MSR] market and a liquid market is not a bad strategy.

“[If I’m a seller] I don’t get a 5X or a 5.25X [multiple], but I’m able to get multiples like 4.8 to 4.9. You know, pigs get fat and pigs get slaughtered, right? (The price paid for loan portfolio management fees is expressed as a multiple of the net management fee.)

“In other words, if you want to sell, or if you need to sell, you sell at the market [and don’t act like a ‘hog’ waiting for a better return]“, added Piercy, “especially in these times, with forecasts of where they are with originations and what mortgage companies are facing. “

In today’s market, Piercy explained, lenders and other MSR holders]are still “able to sell that asset, create a small gain or break even, but convert it to cash while they can.” .

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