Mortgage servicing concentrated in the Midwest goes up for bid

An unnamed seller put nearly $817 million in agency servicing rights with an unusual geographic concentration up for sale on Wednesday, according to the Mortgage Industry Advisory Corp.

Properties in the Midwest primarily secure the retail-originated loans involved, as opposed to the more typical California concentration found in bulk servicing packages put up for bid. 

“It seems like 80% of the mortgage servicing rights universe is in California these days. Midwestern offerings happen, but to have it this concentrated, that’s not all that common,” said Mike Carnes, a managing director at MIAC, in an interview.

The offering is relatively small in a market where deal sizes typically have been in the billions, but the frequency of transactions has decreased slightly compared to the period when the market got a big lift from the upward shift in rates earlier this year, Carnes said.

“There are still a lot of offerings in the market, but there has been a little bit of softening taking place.” Carnes said. “It’s not because the MSRs are less desirable but because buyers are experiencing some bandwidth issues.”

Weighted averages for the government-sponsored enterprise-backed loans involved in the Midwestern offering are: age, 17 months; interest rate, nearly 3.06%; and FICO credit score, 757. The average loan size is around $224,112. Per-loan averages for principal/interest and taxes/insurance are roughly $1,127 and $524, respectively. Most of the loans have funds set aside in escrow accounts to ensure certain payments will be made, and are primarily 30-year fixed rate, owner-occupied mortgages. One borrower has filed for bankruptcy, but the loans are otherwise pristine.

More than 60% of the portfolio consists of Accelerated Remittance Cycle mortgages Freddie Mac backs. The balance are Fannie Mae-backed loans that pass on the cash-flows from borrowers’ payments to investors on an actual/actual basis. The Money Source services the mortgages in the offering. 

Roughly one-third of the loans based on unpaid principal balance carry private mortgage insurance, which borrowers may need to get if they don’t make a 20% down payment. Information on all the loans is available in the Mortgage Electronic Registration System. Notes and deeds are in hard-copy format. Other documents are available as electronic images created from paper files.

The bid deadline for the mortgage servicing rights is 5 p.m. Eastern on June 15.

Buyers examining the package will be bidding in a market where prices remain at historically high multiples of the servicing fee, with some variation based on deal size, said Carnes.

“Deals that are executing in the high fours are typically smaller deals that are maybe $500 million to $600 million. The larger deals, $15 billion to $20 billion and higher, because of their economies of scale, can sometimes garner an execution price in excess of five and a half,” he said.