Rumors of massive MSR offerings from the Wells Fargo market
The Mortgage Servicing Rights (MSR) market opened in 2023 with a healthy amount of capital committed to asset purchases along with numerous deal-ready sellers – as evidenced by the $60 billion to $65 billion MSR portfolio offerings currently up for auction Market experts say.
However, that good news has been overshadowed for the time being by what sources in the MSR market describe as a rumored record-sized series of planned MSR offerings that are said to be being prepared by the banking giant. Wells Fargowhich was last week He officially announced the plans “To reduce the size of its service portfolio.”
Rumors of a potential blockbuster Wells Fargo show or series of shows surfaced late last year and gained renewed urgency with Wells Fargo’s recent public announcement, said one MSR market source, who asked not to be named.
“We’re starting to hear in the last quarter of the year that they’re going to come out with something like $100 billion to $150 billion (Fannie Mae And Freddie Mac MSR]and they’ll follow that up with $100 billion Jenny” [MSRs]market source said. So with the Wells Fargo announcement, rumor has it there’s $250 billion in MSRs [based on loan volume serviced] that will be provided.
Fannie and Freddie purchase and securitize conventional mortgages that comply with their guidelines. Jenny May It guarantees mortgage-backed securities issued by lenders who originate loans through government-backed housing programs, such as Federal Housing Administration.
Although potential Wells Fargo MSR package offerings remain in the realm of “market rumours,” MSR experts say, these rumors have an immediate impact on the MSR market. They say such a huge volume of MSR offerings hitting the market in such a short period of time will affect pricing and liquidity — at least in the upper end of the market.
said Mike Carnes, managing director of the MSR Ratings Group at MIAC Analytics, which provides MSR consulting services. “While I don’t think it significantly affects the liquidity of deals of less than $3 billion, Wells [assuming the rumors about the bank’s planned MSR sales are accurate] It may significantly affect the liquidity of $10 billion and larger deals.”
Karnes said MIAC currently has three MSR packages up for bid or about to be priced that together are valued at more than $4 billion based on loan portfolios to be serviced. MSR deals include various combinations of loans backed by Fannie Mae, Freddie Mac, and/or Ginnie Mae.
“If Wells saturates the market with huge offerings, it can significantly drive larger buyers out of the market for the foreseeable future,” Karnes added. “Essentially, more supply equals lower prices.”
Adding some credence to rumors about a huge pending bid for MSR’s assets, an industry publication Domestic real estate financing It recently reported that its investment banking sources indicated that a portfolio of MSRs worth $85 billion is being prepared for sale by an unidentified seller, a deal that can be divided into two packages. The publication also reported that speculation was growing that the seller might be Wells Fargo.
Karnes and other MSR advisors say the beginning of the year is when MSR buyers have fresh balance sheets and are brimming with capital. These buyers can include banks, independent mortgage banks, and private investors, some of whom are backed by private equity firms.
“If one or two companies step up and buy everything [any large Wells Fargo MSR offerings]”It has very little impact,” Karnes said. “If it is spread out over a period of years, with many large offers and multiple buyers, it can make it difficult for anyone else who wants to sell in larger quantities.
“To protect against potential market saturation, look for sellers to expedite the sale of MSRs, hoping to get into the market while buyers still have the budgets and bandwidth to buy.”
Tom Percy, Managing Director, Inc Incenter Mortgage Advisersanother big player in the MSR space, added that this year “there is an enormous amount of capital committed to the asset [MSRs]. “
Incenter serves as advisor to approximately $17 billion in MSR portfolio offerings across three deals currently available, as well as another $9 billion non-bid private deal now in progress. The three MSR packages being auctioned, all with bidding due dates in January, include the $10.2 billion Fannie and Freddie MSR; a separate $2.1 billion offering from the Fannie and Freddie MSRs; and a massive $4.8 billion loan servicing package offered by a bank.
In addition, Percy said Incenter has another $25 billion or so in MSR portfolio offerings in the pipeline across two other deals. Percy estimated that, as of early January, across the entire MSR market, including “peers in the industry,” there was approximately $60 billion to $65 billion in the market publicly.
“Usually, at the beginning of the year, you have all the new budgets [for MSR buyers]So you have a lot of commitment of capital and people are willing to buy,” Percy said. So, that’s why you’re pushing so hard to get those deals.
Now, there are all these rumors linked [Wells Fargo] And an abundance of MSR’s being fired.”
Percy said that these rumors, whether they turn out to be true or not, are already having a “huge impact” on the market.
This week, there have been a storm of calls and texts, and [I’m] “Talk to the buyers and get their view of the market right now,” Percy said. “I’ve had a lot of comments regarding this [Wells Fargo rumor] And whether it will lead to the capital being fully utilized, and the MSR values will go down.
“there is a lot of [buyers that] I feel like there’s going to be a buying opportunity, so I’m struggling with this because depending on the volume and what’s going to be offered, there’s less than a handful of [buyers] Who can actually catch a glimpse of those big deals.”
As a result of the limited pool of buyers for the massive MSR deals — which could potentially include up to $250 billion in MSRs portfolio offerings — Percy said it’s not clear how the market will ultimately be affected, explaining that the devil is always in the details. If Wells Fargo does indeed come forward with two huge MSR offerings, he said, “there’s this whole other market that will continue to be in the $250 million range to as high as $20 billion, and there are different buyers operating within that category.”
“It is too early to say what the sell side will do [if the Wells Fargo MSR-sale rumors turn out to be true]Percy said. “Each MSR trade is unique, not only is the asset itself unique, but the reason for the sale is unique, and so this will impact which trades may explode versus those that get pulled.”
By next week, we may know something different. But what we’re dealing with now is… an issue of perceived value, given rumors of significant volume hitting the market as a result of recent announcements. [related to Wells Fargo]. So, realization is the reality now.”
Rob Nunziata, Co-CEO, Inc Mortgage from FBCThere are more companies selling MSRs now than in the recent past because of market conditions, with mortgage rates doubling over the past year, he said, a non-bank seller — creating an urgent cash outflow for some lenders. “And the number of buyers hasn’t changed much… so you have a little bit of an imbalance,” he added.
Nunziata, which Mortgage company was born About $7.4 billion in loans across all business channels in 2021, he said MSR’s assets also provide “real cash flow” if kept on the books.
“Service books will typically yield around 10%,” he said. “There is a good return that comes from the book of service.
So, there is no need to sell it [MSR portfolios] Because there is a stream of income, but everyone’s situation is different,” Nunziata added. “Some lenders may need to sell services, and if they do, now is probably not the best time to do that if they can wait.”
Wells Fargo will pounce on opportunities
Wells Fargo officials did not respond to a request for comment for this story. However, Wells Fargo CEO Charlie Scharf, on the lender’s recent Q4 2022 earnings call, said the following in response to an analyst’s question about the bank’s MSR portfolio plans:
“The fact that we’re going to generate a lot less is certainly going to mean that over time, MSR and overall service book will very naturally decrease based on that, over a fairly long period of time. But we’re also going to be looking for smart, economical ways to reduce the complexity and size of our service book from now on. And even then. And if those present themselves, we’d certainly be interested in doing so.”
This response doesn’t seem to rule out that Wells Fargo could make a huge MSR bid, or a series of smaller but massive transactions this year. The bank recently reported a profit of $13.2 billion for 2022, down 39% from its 2021 profit of $21.6 billion.
In addition to shrinking the size of its MSR portfolio, Wells Fargo, the third largest US mortgage lender based on assets, Announced on January 10th It will be the correspondent channel, which was responsible for about 44% of the bank’s total mortgage origination volume of $14.6 billion in the fourth quarter of 2022. The bank’s mortgage origination volume in the fourth quarter was down 70% year-over-year, HousingWire reported last week.
Mortgage data analytics company recursion Reports indicate that as of the first week of January 2023, Wells Fargo’s MSR portfolio totaled $608.2 billion, which is about 7.3% of the total $8.37 trillion in MSR volume outstanding as of that date – including Ginnie Mae and Fannie Mae and Freddie Mac MSRs.
Divided by Channel MSR, the lender’s total portfolio of MSRs associated with Fannie Mae-backed loans was $269.4 billion at the same date, or about 8% of the market share. Its portfolio of MSR loans backed by Freddie Mac totaled $226.5 billion, or 7.9% of the market share.
Wells Fargo’s Ginnie Mae MSR portfolio was $112.3 billion in early January, representing 5.3% market share, according to Recursion data. Among the leading MSR providers across all agencies as of the first week of January, according to Recursion, includes Wells Fargo at No. 1, followed by benimacAnd c. B. Morgan ChaseAnd Rocket mortgageAnd Lakeview Loan ServiceAnd subject to freedomAnd Mr. CooperAnd Rhythm Capital (Previously New residential), And United Wholesale Mortgage.
Whether or not the rumors about Wells Fargo and MSR’s potential blockbuster offering are true will eventually die out and see its way through the market, Percy said.
“MSR is getting a lot of interest as an alternative investment,” he added. “I was very optimistic about the liquidity coming in this year.
“I finally feel as though we should remain hopeful, if we can get past this initial reaction What might happen In the market. I think the laws of economics will eventually settle here once there is more certainty.”