US Mortgage Servicing Rights Market Stays Hot

Fresh evidence over the past few weeks that there is no let up in the secondary market for Mortgage Servicing Rights or “MSR’s” as MetLife announced the sale of its servicing portfolio to JP Morgan and Bank of America seems about to chip in with another large sale.  The MetLife trade was for some $70Billion and the BoA trade may wind up in the $100Billion range.  That’s approaching $200Billion in sales from just these two organizations within the last several weeks.

Clearly the new regulatory regime, including the new Basel III rules for balance sheet treatment of mortgage servicing rights continues to have an effect on the traditional “originate and service” model that the US mortgage industry had grown accustom to for many, many years, particularly among the large retail banks like BoA.

Without a clear benefit of being able to apply these servicing rights, dollar for dollar, to a bank’s regulatory capital requirements, it is easy to understand how this rule is changing the way that banks look at their mortgage businesses; perhaps forever.  We’re not so sure that now that the dust from the credit crisis has settled and cooler heads may prevail that this isn’t one of the Basel III standards that rational folks might now agree goes a bit too far.

Assuming that underwriting standards will always be suspect, no matter how well an institution is run or how strong the regulatory process is, seems to be a bit of “double taxing” on the banks and other mortgage originators.  Certainly it isn’t hard to understand that the new regulations have a high potential for limiting capacity in the mortgage markets, whether or not there is a reasonably strong secondary market for MSR’s.

About markferraris
Managing Principal Orchard Street Partners LLC

One Response to US Mortgage Servicing Rights Market Stays Hot

  1. Voyles says:

    Much like with any regulation or law change, the markets will adapt. These banks will find a way to profit from these changes, its what they do.

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