Mortgage servicing rights remain in demand by banks, other firms

Banks and other firms are purchasing servicing rights to capitalize on high yields.

Nonbank firms have been increasing their purchases of mortgage servicing rights (MSRs), partially as a result of stringent capital requirements being implemented in the United States under the international Basel III framework. However, these assets remain in demand by banks, according to National Mortgage News.

The source quotes several industry insiders on why this is the case. Matt Maurer of MountainView Servicing Group explains that in addition to the attractive yields, banks see other opportunities associated with MSRs. Thanks to high demand, the assets can be sold at a profit. Banks can also use their position in the servicing market to sell other products to borrowers.

"Large holders of the legacy servicing appear to be mostly more than willing to sell, but regarding the newer production, it's interesting. We are starting to see some bank buyers come back into the market," Mauer said.

Mark Mason, CEO of Seattle-based HomeStreet Bank, adds that because every bank is in a different position with regard to Basel III regulations, each one will have to perform its own analysis of the benefits and risks associated with these assets. His firm, which was servicing approximately $12 million worth of mortgages at the beginning of the year, is facing a "significant negative impact" from the capital requirements, and is planning to sell up to 25 percent of its MSR portfolio. Mason says the bank does not want to unload its MSRs simply to achieve compliance with the Basel rules, but it appears to have little choice in the matter.

The pressure on banks to sell will create opportunities for other firms to increase their involvement in this lucrative market. Although MSRs are an attractive asset, firms need to have the right loan servicing software in place to capitalize on purchases.