- Jonathan Poyer
Mortgage Servicers and The Markets
Long term interest rates edged lower as the 10 year Treasury yield declined from 3.08% to 2.91% over the week. While the headline CPI number released on Wednesday (9.1%) was ominous on the surface, some signs of inflation moderation have recently emerged.
A higher risk of economic slowdown has also raised demand for mid to long term Treasury bonds. Given declining long term yields, 30 year mortgage rates have recently taken a break from their relentless climb which started at the beginning of the year. While the average 30-year mortgage rate touched 6% in late June, mortgage rates now sit around 5.75% on average.
Why not take a look at Mortgage Servicing Rights:
When a home buyer takes out a mortgage directly from a bank or via a mortgage broker, they typically assume the money is coming from a bank. Furthermore, they assume that when they make their mortgage payments, the money is going back to the bank to pay off their loan.
In reality, many mortgage originators sell the loan to someone else and even if they don’t sell the loan, they rely on another firm to collect the mortgage payments, track things like taxes and insurance charges, and handle all the calls and inquiries from the borrowers. In addition, when loans are sold or packaged into mortgage backed securities, the loan servicers play a critical role.
Mortgage servicers are responsible for the day-to-day management of mortgage loan accounts, including collecting and crediting monthly loan payments and handling escrow accounts. In today’s market, loans and the rights to service them are often bought and sold. In many cases, the company to which payments are sent is not the company that owns the loan. If a borrower has questions about their loan account, they contact the mortgage servicer.
In addition to acceptance and recording of mortgage payments, servicers also calculate variable interest rates on adjustable rate loans, pay taxes and insurance from escrow accounts, negotiate workouts and modifications upon default, and conduct or supervise the foreclosure process when necessary. Banking organizations often perform mortgage servicing not only for mortgages that they originate but for others where they have purchased the servicing rights.
Mortgage servicing revenues include servicing fees net of guarantee fees, ancillary fees, and float earnings from holding Principal & Interest (P&I) and Taxes and Insurance (T&I) payments between collection and remittance. Servicing fees are collected by servicers as a component of the loan’s note rate; therefore, servicers do not collect servicing fee revenue when borrowers are delinquent. The minimum servicing fees for GSE loans is 25bps and for FHA/VA loans it is 19bps.
Some potential MSRs:
Ocwen Financial (OCN)
Starwood Property Trust (STWD)
Pennymac Financial Services (PFSI)
MFA Financial (MFA)
Rithm Financial (RITM) [formerly New Residential (NRZ)]