When big banks cut back on correspondent aggregation, mortgage company PennyMac Financial Services moved in and became the No. 3 player, as well as the largest nonbank in the space.
And now that some banks have less interest in certain types of servicing, PennyMac has more than doubled the size of its mortgage servicing rights portfolio. Banks have been less interested in correspondent and government MSRs in particular, and for those that are close to their limits on increasingly tight capital ratios, MSRs are a turnoff altogether.
PennyMac's servicing as of the end of the second quarter rose to nearly $94 billion, from about $44 billion at the same point last year, according to data from company reports compiled by NMN and MortgageStats.com.
The result? Not only is PennyMac the third-largest correspondent aggregator and eighth-largest overall originator, it's also a top-20 servicer with room to grow in a market where large packages of servicing are reportedly trading with increasing frequency.
"We've seen a larger volume of bulk transactions coming to market," said PennyMac CEO Stanford Kurland during the company's Sept. 9 presentation at Barclays' investor conference in New York.
The company will be pursuing additional bulk MSR deals if the price is right, Kurland added.
On a few transactions in the last couple of months "prices appeared to be rich to us," Kurland said, responding to a question about pricing. But generally, prices in the market have been relatively consistent with historic norms, he said.
In addition to purchasing servicing rights, PennyMac will continue to generate MSRs through its consumer direct loan channel. The company is focused on recapturing servicing that might otherwise run off from its portfolio.
"We find that in a lot of portfolios some of the lower balance loans have been ignored over the years so there's a lot of opportunity," he said.
While originations generally have been flagging in the business as rate-driven refinancing has diminished, especially in the online consumer-direct channel, Kurland expects the channel to grow through purchase transactions by Millennial generation borrowers.
"People are going to be more and more accustomed to using electronic means to getting a loan pre-approved," as opposed to going through real estate agents and their loan officer referral partners, he said.
The traditional origination structure that involves loan officers and brick-and-mortar branches are "not as well controlled" as the consumer direct channel, Kurland said.
PennyMac also deals in investment management involving various mortgage assets, including private-label securitizations, through a partnership with PennyMac Mortgage Investment Trust, the distressed asset investor it was spun off from in 2013.
The company has securitized jumbo mortgages, but generally still finds that that market has been "very slow to develop," said Kurland. Though some have expected ability-to-repay and qualified mortgage regulations to spur an uptick in private-label securitizations, Kurland said he hasn't seen that yet.
In the correspondent channel, there has been some seller reluctance to make non-QM loans because of the associated originator liability. And jumbo whole loan sales have continued to be more attractive to sell in terms of the net gain one can get in the market for them relative to jumbo securitizations, Kurland said.
However, growth of private securitizations continues to make slow progress and could eventually become an asset for the company's former parent to hold long term.
When asked about nonperforming loans, Kurland said NPLs continue to actively trade in the market, but there's been an influx of bidders and "the prices have been bid up," though he added the market could "rationalize" in the next six months.