During 2020, there was a record-breaking dip in mortgage rates, going down as low as 2.65% on a 30-year fixed-rate loan. As a result, it led to an origination boom during which many lenders struggled to manage the high demand and meet the challenges of closing deals at lightning speed. The refi boom is slowing down, but there’s a prediction that purchase originations will reach $1.73 trillion in 2022. For lenders, continuing to offer exceptional customer service and ensuring borrower loyalty is essential in today’s competitive times.
As the purchase and re-finance volumes go down, the pressure to generate stable revenues from these sectors will be extremely high on lenders. In such a scenario, de-risking the business with a servicing portfolio can help balance the revenues for lenders. In 2022, it is expected that more gains will come from the servicing portfolio; thus, lenders are looking forward to purchasing MSRs(Mortgage Servicing Rights).
What are Mortgage Servicing Rights?
MSR is a special arrangement in which a third-party promises to collect the mortgage on behalf of the lender for a fee. Since mortgage payments happen over the course of a mortgage, there are various administrative duties and tasks known as Mortgage Servicing Rights. These include:
- Collection of monthly payments
- Allocation of the principal and interest to each payment
- Management of the insurance fees
- Management of property tax payments
The Importance of MSRs
Banks and lenders often originate a high volume of mortgages to various borrowers. As a result, it can be costly and time-consuming for mortgage companies or banks to service every loan. In such cases, lenders can buy the mortgage servicing rights and offer end-to-end servicing for the loan moving forward.
The lender who buys the MSR doesn’t have to bear the risk of its own mortgage loans. Instead, they can specialize in payment collection and other mortgage servicing solutions using the latest technologies and innovations for client satisfaction.
Banks issuing many mortgages may not have the same level of resources to devote to servicing the loans. Plus, since their core revenue model is origination, they might sell the MSR to lenders with the expertise and technological advancements for better servicing. Handling mortgage servicing rights is a niche where smaller companies or lenders usually earn money by taking over administrative tasks without owning the mortgage.
What are the Benefits of Purchasing MSRs?
1. Offsetting the Business Risk
Lenders struggling with origination or re-financing can offset their risks by adding MSRs to their portfolios. This will continue a steady revenue stream wherein lenders can collect payments from borrowers and pass them to the original lender in exchange for a fee.
2. Adding Another Revenue Stream
For lenders, buying MSRs brings cash flow in a tight and challenging market scenario. They earn revenues like servicing fees net of guarantee fees, ancillary fees, and float earnings from holding Principal and Interest and Taxes and Insurance payments between the collection and remittance period.
3. Embracing a Cost-Effective Strategy
Many banks are now getting out of the servicing business entirely or scaling it back, offering lenders many opportunities to jump in and purchase MSRs at affordable prices. If you buy MSR at cost-effective prices and continue to handle the servicing business for a long time, small-scale lenders have a higher chance of profitability. Also, with the production easing, mortgage companies are selling their swollen portfolios with opportunistic futures.
A Brighter Future Awaits
The MSR sales market is growing this year, propelled by the rising-rate environment and the anticipated tax-code changes. Last year, three MSR bulk-sale packages involved loan portfolios valued at over $8 billion. Another package involves 2350 loans, valued at over $753 million as per the bid documents. Another MSR package is valued at $970 million and involves 2537 loans, most of which originated in California. An MSR also offers 19,752 loans, valued at $6.3 billion. If you’d like to enter the market of MSRs and buy the rights for servicing loans, good customer service, technological innovations and exceptional professional support are a must.
PrivoCorp offers end-to-end support for mortgage servicing right owners. Our review audits are tailored to the MSR loans you purchase, and we offer the expertise and flexibility for the appropriate review of MSR purchase requirements. Plus, with top-notch analysis capabilities, we have helped lenders save tens of thousands of dollars by uncovering critical issues.
Our experts analyze your mortgage servicing data, and the integrity analysis helps your business uncover potential servicing issues on the current portfolio before purchasing. We offer easy-to-understand issues reports, a propriety analysis system, data exceptional analysis, underwriting exception analysis, portfolio stratification, default servicing, regular servicing, loss mitigation, loan modifications and due diligence. As a result, you can buy more MSRs and continue to grow your business with our trusted and timely support and guidance.