[ad_1] The mortgage-servicing rights market just keeps on ticking even as the overall housing market takes a licking. And while depository banks that are fueling that growth, concern is mounting over Ginnie Mae MSRs held by nonbanks. Mortgage advisory firms Prestwick Mortgage Group and partner Mortgage Capital Trading (MCT); Incenter Mortgage Advisors; and MIAC Analytics are out with a total of 10 bulk mortgage-servicing rights (MSR) offerings with bid-due dates in October. The 10 offerings together involve Fannie Mae, Freddie Mac and Ginnie Mae loan pools valued collectively at $12.77 billion. MIAC is handling one of those bulk offerings, one of the largest, valued at $2.44 billion and involving a combination of Fannie, Freddie and Ginnie MSRs. Prestwick is marketing four separate deals, two in partnership with MCT, valued in total at $2 billion — which together also feature MSRs for single-family residential loan pools from all three agencies. What’s happening in an inflationary environment is everything’s getting more expensive. Tom Piercy, Managing director of Incenter Mortgage Advisors Incenter has the highest deal count and the largest deals by volume, at five offerings valued collectively at $8.33 billion, Together they involve MSRs for single-family mortgage pools across all three agencies. Two of those offerings, one an all-Ginnie package and the other a Fannie and Freddie bulk offering, each involve loan-servicing pools valued at $4.1 billion. Over the first nine months of this year, banks have far outstripped nonbanks in buying up MSR packages. Banks have been net purchasers of MSRs, to the tune of $107.8 billion — compared with $51.1 billion for all of 2021, according to a report by mortgage-data analytics firm Recursion. Tom Piercy, managing director of Incenter Mortgage Advisors, said many independent mortgage banks stockpiled huge volumes of low-rate loans in 2021, understanding that rates would eventually rise, and they are cashing in on the new rate environment — a climate that also is wreaking havoc on loan-origination volumes. In addition, banks who are now buying, he added, can take advantage of the product cross-selling opportunities through loan servicing and, more importantly, they can leverage the escrow float opportunities MSRs offer. “The deck is stacked in favor of the depositories when it comes to owing MSRs, and that is because of what they can do with the escrow [accounts],” Piercy explained. “Banks can leverage these [escrow] deposits [using them as collateral to borrow] through the Federal Home Loan Banks to reinvest into higher yielding assets. “And so that’s why banks have always been in a much better position to own the MSRs.” Digging down deeper into the numbers, the Recursion report shows that over the first nine months of 2022, banks have been net buyers of Fannie Mae and Freddie Mac MSRs and net sellers of Ginnie Mae MSRs, while nonbanks are selling off Fannie and Freddie MSRs and still far outstripping banks in issuing and buying Ginnie Mae MSRs. The weak link? In stark contrast to banks, nonbanks had a legacy portfolio of $1.77 trillion Ginnie Mae MSRs as of the end of September, the Recursion report shows. That’s more than five times the size of the banks’ aggregate Ginnie MSR portfolio of $334 billion as of the same date. Those Ginnie MSRs, however, represent a weak link in the nation’s housing system when the economy is under stress, as it is now. Ginnie serves as the government-backed securitization pipeline for loans insured by government agencies that provide loan-level mortgage-insurance coverage through their lending programs. Unlike Fannie and Freddie, however, Ginnie does not purchase loans. Rather, under the Ginnie program, lenders originate qualifying mortgages that they can then securitize through the agency. Ginnie guarantees only the principal and interest payments to purchasers of its bonds, which are sold worldwide. The underlying loans carry guarantees, or a mortgage insurance certification, from the housing agencies approving the loans — which include single-family mortgages backed by Federal Housing Administration (FHA), the U.S. Department of Agriculture’s Rural Development program, the U.S. Department of Housing and Urban Development’s Office of Public and Indian Housing and the U.S. Department of Veterans Affairs (VA). The largest volume of loans, however, is delivered through the FHA and VA lending programs. The holders of Ginnie Mae MSRs, primarily nonbanks today, are the parties responsible for assuring timely payments are made to bondholders. And when the underlying loans go unpaid due to delinquencies, those servicers still must cover the payments to the bondholders. And in the FHA program, in particular, according to Richard Koss, chief of research at Recursion, 30-day loan delinquencies have been ticking up since the beginning of the year. The same is true, but to a lesser degree, for the VA program, he said. As of September, the 30-day delinquency rate for FHA loans stood at 3.77%, up from 3.02% as of the beginning of the year, Recursion data shows. The overall FHA delinquency rate — for loans 30-days late or more, excluding foreclosures — stood at 8.85% as of the second quarter of this year, compared with 4.22% for VA loans and 2.64% for conventional loans, according to the Mortgage Bankers Association. It’s a source of concern I don’t think is broadly understood. The main mitigating factor is the still-huge amount of equity most buyers have in their homes. Recursion’s richard koss on ginnie mae msr risks. “The demographic of the FHA borrower is the first-time homebuyer, with very little to no down-payment,” Piercy explained. “The profile has shown over the years to be susceptible to poor performance when national economic numbers start slowing. “And what’s happening in an inflationary environment is everything’s getting more expensive.” The deep downside risk for nonbanks holding a large volume of Ginnie Mae MSRs is loan defaults. Defaults kick in the underlying loan insurance provided through the agency guaranteeing the loan, such as FHA. Another wrinkle in the picture for the short-term for mortgage servicers is that in most cases, borrowers can still “request an initial COVID hardship forbearance as long as the COVID-19 National Emergency is in place,” according to the Consumer Financial Protection Bureau. Although principal recovery is ultimately guaranteed through FHA in the event of a default, there often is a bureaucratic time lag in
