Rumors of mega-MSR choices from Wells Fargo stir market

The mortgage servicing rights (MSR) market has opened 2023 with a wholesome quantity of capital dedicated to buying the belongings together with a number of sellers primed for offers — as evidenced by the $60 billion to $65 billion in MSR portfolio choices at present out for bid, market specialists say.

That excellent news, nevertheless, is being overshadowed for now by what sources within the MSR market describe as a rumored record-sized collection of deliberate MSR choices which are reportedly being ready by banking large Wells Fargo, which final week officially announced plans “to scale back the scale of its servicing portfolio.” 

One MSR market supply, who requested to not be named, stated rumors round a possible Wells Fargo mega-offering or collection of choices surfaced late final yr and have taken on renewed urgency with Wells Fargo’s current public announcement.

“We had began listening to within the fourth quarter that they have been going to be popping out with a $100 billion to $150 billion standard (Fannie Mae and Freddie Mac MSR] providing, and they’d observe that with $100 billion of Ginnie” [MSRs],” the market supply stated. “So, with the Wells Fargo announcement, the rumors are that there’s $250 billion of MSRs [based on loan volume serviced] which are going to be made out there.”

Fannie and Freddie buy and securitize standard mortgages that meet their pointers. Ginnie Mae ensures mortgage-backed securities issued by lenders who originate loans via government-backed housing applications, such because the Federal Housing Administration.

Though the potential Wells Fargo MSR bundle choices are nonetheless within the realm of “market rumors,” MSR specialists say, these rumors are having an instantaneous impression on the MSR market. They are saying such an enormous quantity of MSR choices hitting the market in a short while span would have an effect on pricing and liquidity — not less than on the prime finish of the market.

“Whereas I’m unable to verify or deny the quantity that Wells plans to launch to the market, what you heard appears according to what we’re additionally listening to,” stated Mike Carnes, managing director of the MSR valuations group at MIAC Analytics, which offers MSR advisory providers. “Whereas I don’t assume it vastly impacts the liquidity of offers lower than $3 billion, Wells [assuming the rumors about the bank’s planned MSR sales are accurate] could very effectively impression the liquidity of $10 billion and higher offers.”

Carnes stated MIAC at present has three MSR packages out for bid or about to be priced that mixed are valued at greater than $4 billion based mostly on the mortgage portfolios to be serviced. The MSR offers contain numerous mixtures of loans backed by Fannie Mae and Freddie Mac and/or Ginnie Mae.

“If Wells saturates the market with mega choices, they may very effectively pull the bigger patrons out of the marketplace for the foreseeable future,” Carnes added. “Principally, an excessive amount of provide equals decrease costs.”

Including some credence to the rumors of a pending enormous providing of MSR belongings, business publication Inside Mortgage Finance reported just lately that its sources within the funding banking enviornment indicated an $85 billion portfolio of MSRs was being prepped on the market by an unspecified vendor, a deal that may presumably be carved into two packages. The publication additionally reported that hypothesis was mounting that the vendor is perhaps Wells Fargo.

Carnes and different MSR advisory-firm specialists say the beginning of the yr is when MSR patrons have new budgets and are flush with capital. These patrons can embody banks, impartial mortgage banks and personal buyers, some backed by personal fairness corporations.

“If one or two corporations step up and purchase all of it [any large Wells Fargo MSR offerings], it has little or no impression,” Carnes stated. “If it will get unfold out over a interval of years, with a number of massive choices and a number of patrons, it may make it tough for anybody else eager to promote in bigger portions.

“To safeguard in opposition to potential market saturation, search for sellers to speed up the sale of their MSRs, hoping to get in entrance of the market whereas patrons nonetheless have the budgets and bandwidth to purchase.” 

Tom Piercy, managing director of Incenter Mortgage Advisors, one other massive participant within the MSR area, added that this yr “there’s a large quantity of capital dedicated to the asset [MSRs].”

Incenter is serving as an advisor for some $17 billion in MSR portfolio choices throughout three offers out for bid at present, plus one other $9 billion personal nonauction deal now within the works. The three MSR packages being auctioned publicly, all with bid due dates in January, embody a $10.2 billion bulk providing Fannie and Freddie MSRs; a separate $2.1 billion providing of Fannie and Freddie MSRs; and a $4.8 billion jumbo-loan servicing bundle being supplied by a financial institution.

As well as, Piercy stated Incenter has one other $25 billion or so in MSR portfolio choices within the pipeline throughout two different offers. Piercy estimated that as of early January, throughout your entire MSR market, and together with “his friends within the business,” there was about “$60 billion to $65 billion in play within the market publicly.”

“Usually, at the start of the yr, you’ve obtained all new budgets [for MSR buyers], so that you’ve obtained a number of capital dedication and folks prepared to purchase,” Piercy stated. “So, that’s why you push arduous to get these offers out.

“Now, there’s all these rumors tied to [Wells Fargo] and an abundance of MSR being launched.”

Piercy stated these rumors, whether or not they turn into true or not, are already having a “main impression” in the marketplace.

“This week there’s been a storm of calls and texts, and [I’m] speaking with patrons and getting their perspective on {the marketplace} proper now,” Piercy stated. “I’ve had so many feedback with regard to this [Wells Fargo rumor] and whether or not it’s going to trigger all of the capital for use up, and MSR values will drop. 

“There’s a number of [buyers that] really feel there’s going to be a shopping for alternative, so I’m fighting this as a result of based mostly on the quantity and what’s going to be supplied, there’s lower than a handful of [buyers] who may really have a look at these massive offers.”

On account of the restricted purchaser pool for mega-MSR offers — probably involving a complete of as much as $250 billion in MSRs portfolio choices — Piercy stated he it’s not clear how the market can be impacted in the end, explaining that the satan is at all times within the particulars. He stated if Wells Fargo did transfer ahead with a pair enormous MSR choices, “there’s this entire different market that’s going to proceed within the $250 million to as a lot as $20 billion vary, and there’s completely different patrons that function inside that class.”

“It’s too early to say what the promote facet will do [if the Wells Fargo MSR-sale rumors turn out to be true],” Piercy stated. “Each MSR commerce is exclusive, not solely the asset itself is exclusive, however the cause for promoting is exclusive, and so that will impression as to what trades could go off versus which of them are pulled again.”

“By subsequent week, we could know one thing completely different. However what we’re coping with now’s … an issue round perceived worth, given the rumors of sizable quantity coming to market because of current bulletins [related to Wells Fargo]. So, notion is actuality proper now.”

Rob Nunziata, co-CEO of FBC Mortgage, a nonbank seller-servicer, stated there are extra corporations promoting MSRs now than within the current previous due to market circumstances, with mortgage charges doubling over the previous yr — creating cash-flow urgencies for some lenders. “And the variety of patrons actually hasn’t modified that a lot … so you’ve just a little little bit of imbalance” he added.

Nunziata, whose mortgage company originated some $7.4 billion in loans throughout all enterprise channels in 2021, stated MSR belongings additionally present “actual money move” if saved on the books.

“Servicing books usually will yield round 10%,” he stated. “There’s an excellent yield that comes from the servicing e book.

“So, there’s no must promote it [MSR portfolios] as a result of there’s an earnings stream, however all people’s state of affairs is completely different,” Nunziata added. “Some lenders could must promote servicing, and in the event that they do, proper now might be not the optimum time to do it if they will wait.”

Wells Fargo will pounce on alternatives

Wells Fargo officers didn’t reply to a request for remark for this story. Nonetheless, Wells Fargo CEO Charlie Scharf, within the lender’s current fourth-quarter 2022 earnings name, stated the next in response to an analyst’s query concerning the financial institution’s MSR portfolio plans:

“The truth that we’ll be originating quite a bit much less will definitely imply that over time, the MSR and the general servicing e book will come down very naturally based mostly upon that, over a reasonably lengthy time period. However we’ll additionally search for clever and financial methods to scale back the complexity and the scale of our servicing e book between every now and then. And if these current themselves, we’ll actually be interested by doing that.”

That response doesn’t appear to rule out that Wells Fargo may entertain a mega-MSR providing, or collection of smaller however nonetheless enormous transactions this yr. The financial institution just lately reported a revenue of $13.2 billion for 2022, down 39% from its 2021 revenue of $21.6 billion.

Along with decreasing the scale of its MSR portfolio, Wells Fargo, the third largest U.S. mortgage lender based mostly on originations, introduced on Jan. 10 that it is going to be present the correspondent channel, which was chargeable for some 44% of the financial institution’s complete mortgage origination quantity of $14.6 billion within the fourth quarter of 2022. The financial institution’s This autumn mortgage origination quantity was down 70% yr over yr, HousingWire reported final week.

Mortgage-data analytics agency Recursion experiences that as of the primary week of January 2023, Wells Fargo’s complete MSR portfolio stood at $608.2 billion, representing a few 7.3% share of the full $8.37 trillion in MSR quantity excellent as of that date — together with Ginnie Mae, Fannie Mae and Freddie Mac MSRs. 

Damaged down by MSR channel, the lender’s MSRs portfolio linked to Fannie Mae-backed loans complete $269.4 billion as of the identical date, or about and an 8% market share. Its MSR portfolio of Freddie Mac-backed loans totaled $226.5 billion, or a 7.9% market share.

Wells Fargo’s Ginnie Mae MSR portfolio stood at $112.3 billion as of early January, representing a 5.3% market share, based on Recursion’s information. The main all-agency MSR servicers as of the primary week of January, based on Recursion, embody Wells Fargo at No. 1, adopted by PennymacJ.P. Morgan ChaseRocket MortgageLakeview Mortgage ServicingFreedom MortgageMr. CooperRithm Capital (previously New Residential), and United Wholesale Mortgage.

Piercy stated whether or not the rumors associated to Wells Fargo and potential mega-MSR choices are true or not will in the end play out and that can “work its method via” the market.

“MSRs have a number of important curiosity as a substitute funding,” he added. “I used to be extraordinarily bullish with regard to liquidity coming into this yr. 

“And I’m in the end feeling as if we must always stay bullish, if we are able to get via this preliminary response to what could occur within the market. I believe the legal guidelines of economics will in the end settle in right here as quickly as there’s higher certainty.”