In a recent presentation to investors Fortress Investment Group estimated that $4 trillion in mortgage servicing rights may change hands over the next few years, but MSR investors and others say that estimate is much too high.
“Banks will dump MSRs to some degree,” said one investor who plays in the market, “but the $4 trillion is ridiculous. A better number might be $1 trillion.”
As reported by ASR sister publication National Mortgage News, Bank of America, which controls $1.76 trillion in MSRs, has been auctioning off product almost monthly. JPMorgan Chase, and Citigroup have been occasional sellers as well – but almost all of it has been legacy product which needs ‘high touch’ attention.
The nation’s top five servicers, as a group, control 63% of all outstanding residential debt in the U.S., according to ASR sister publication National Mortgage News and the Quarterly Data Report.
It’s believed that MSR values recently may have reached a bottom but there are new concerns about coming Basel III rules which cap how much servicing rights (as an asset) can count toward core capital.
Fortress owns a large stake in Nationstar Mortgage, Lewisville, Texas, which is the leading bidder to acquire $382 billion of MSRs from Residential Capital Corp./GMAC. Nationstar and FIG are both nonbanks.
One hedge fund manager, requesting his name not be used, said his firm has been buying shares in publicly traded nonbanks because they MSRs they’ve been buying are “extremely undervalued.”