One of the innocent casualties of the housing bubble/mortgage bust was the secondary market for servicing rights.

Over the past two years the largest "bulk" sales were facilitated by the Federal Deposit Insurance Corp., as a way to raise cash from the carcasses of dead banks.

The so-called normal secondary market for MSRs has been moribund, with mostly smaller deals dominating the business.

But over the past few months there has been a small revival of bulk deals — and with yearend rapidly approaching sellers are trying to turn servicing contracts into cash.

Most of the deals have been relatively small, with packages of $500 million or less changing hands, but there are exceptions.

Mortgage Industry Advisory Corp. of New York closed two different Freddie Mac bulk deals in November involving $2.5 billion in rights.

Interactive Mortgage Advisors is currently peddling a $2.2 billion portfolio of alternative-A servicing, and recently closed on a $1 billion package of bulk conventional MSRs. (It has a handful of smaller deals out for bid as well.)

Even though alt-A servicing can be a tough sell, given that it's alt-A where delinquencies are higher than conventional loans, the Denver firm Interactive Mortgage Advisors is hopeful.

The big question with all of these sales and auctions is price.

Servicing brokers are loath to discuss pricing because they don't want to give sellers unreasonable expectations. Nor do they want buyers to sit on the sidelines thinking that if they wait they can buy the same package cheaper in a few months.

Most brokers agree on one thing: that the days of investors paying five and six times the servicing fee for bulk mortgage servicing rights are long over and won't be back anytime soon.

(On a Fannie Mae/Freddie Mac portfolio a price of five times translates into 125 basis points.)

Incoming Basel III rules will put a cap on how much a bank can count mortgage servicing rights toward capital, and with the future of Fannie and Freddie in doubt, prices have been nicked.

Of course, the big drag on values — as might be expected — has been delinquencies.

Still, there is a consensus among advisers that "somewhat new" MSRs (fourth-quarter 2008 vintage and beyond) are worth more for the simple reason that underwriting standards are much tougher and this product has a low likelihood of default.

"There's a new paradigm out there," said IMA managing member Tom Piercy. "People recognize that this is a quality asset."

Still, no one in the business thinks new MSRs are going to sell for anything much north of four times the servicing fee.

"I think you'll see a lot of deals in the threes" — multiple of the servicing fee. "Some of our recent deals have been in the high threes," said one adviser, requesting his name not be used. "It's a buyer's market."

Rod Schluter, managing director of MountainView Servicing Group in Denver, has three small MSR deals out for bid and expects all will close by yearend. But Schluter isn't so certain that sellers are unloading mortgage servicing rights to raise cash by yearend.

"Some of what we're seeing are 'housecleaning' sales where banks want to get rid of product that isn't in their footprint," he said.

"In some cases, they may not have a license to service in these states."

An East Coast-based servicing adviser who didn't want his name published is modestly bearish on the mortgage servicing rights auction market.

"I know there's deals out there, but let's see how many of them close," he said.

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