While rising mortgage rates are crimping originations, loan servicers are beginning to benefit from what could turn out to be a boom in the value of their portfolios.
However, not all mortgage banking firms will benefit, because the servicing release premiums offered by the nation's aggregators — Wells Fargo & Co. and Bank of America Corp. being the largest — remain anemic compared with past years.
"All the major aggregators have pulled back their pricing," said Tom Piercy, a managing member of Interactive Mortgage Advisors in Denver.
When aggregators buy loans from correspondent lenders, they pay a premium for those smaller lenders to release the servicing rights. Cuts to these premiums came fast and furious in the fall of 2008 when financial markets collapsed and rates plunged. The problem now is that mortgage bankers might expect a pricing snap-back that will never come.
According to investment bankers and servicing advisers, the average servicing release premium is now roughly 100 basis points on loans that are eventually sold to the government-sponsored enterprises. Before the market crashed it was between 145 and 175 basis points.
"The economic value of servicing is greater now than a few months ago," Piercy said, but he is not convinced, he said, that the largest buyers of loans on a "servicing released" basis will suddenly pay more just because rates are on the rise.
Glen Corso, who runs the Community Mortgage Banking Project, an advocacy group, called current servicing release premiums "lousy."
"There's a lot of griping on this from our members," he said.
In turn, many mortgage banks (and even depositories) that quit servicing a decade ago are now contemplating re-entering the business, because they can capitalize their servicing at a higher value — thanks to rising interest rates. But it might be easier said than done for small and midsize mortgage banking firms to resume servicing their own loans.
Fannie Mae and Freddie Mac are said to be taking a year or more to approve applications for new seller/servicers. Neither GSE would discuss the matter. But one servicing adviser, requesting his name not be used, said, "They might tell you it will take 12 months to get approved, but it could turn out to be 24 months."