The mortgage-market slowdown is stirring up interest in the rights to handling monthly mortgage payments.
Sales of servicing rights jumped 14% in 2018 from a year earlier to more than $600 billion of loans backed by Fannie Mae, Freddie Mac and Ginnie Mae. In the final three months of 2018, the servicing changed hands on loans worth $183 billion, up 27% from the previous year.
Mortgage servicers, in addition to collecting a borrower’s installment and passing it on to the loan owner, take care of duties like ensuring taxes and insurance are paid. If the borrower defaults, the servicer is the first to jump into action. The company that services a mortgage used to be the same as the one that made the original loan, but in recent decades those two crucial housing market functions have separated.
The increase in servicing transfers is the latest ripple effect from a slowdown in the housing market, which has forced lenders to slim down, consolidate or close up shop. Many of the sellers are independent mortgage lenders that don’t have deposits to fund themselves or other lines of business that can help them withstand a downturn. Stronger players – both banks and non banks – have been picking up servicing rights from weaker lenders that need to raise cash. The industry shakeout stems from a sharp decline in refinancing activity as rates have risen and a drop-off in new purchases.
Source: Inside Mortgage Finance, reported in the Wall Street Journal by Ben Eisen on February 13, 2019.