Market Opportunities

Since the beginning of the credit crisis in early 2008 the MSR market has seen an unprecedented supply - demand imbalance that has changed the bulk MSR market for the foreseeable future. There are several key factors affecting the demand for servicing. Foremost is the consolidation of the industry on both the origination and servicing side.  Today's mega-servicers and mega-originators control so much of the overall new servicing volume that small, seasoned bulk MSR portfolios between $200 million -$2 billion have little, if any interest to these firms in the current market.  At the regional bank and thrift level, major credit risk concerns and the lack of MSR risk management expertise has forced these firms to exit the market, further eroding the demand for MSRs. These institutions had been a strong buy side support for the bulk MSR market over the last 10 – 15 years. Other factors affecting the demand are: Agency put backs and the corresponding counterparty risk concerns by MSR buyers, the lack of acquisition funding from warehouse lenders, and the severe spike in delinquencies and the corresponding cost to advance on these loans.

With all these factors affecting the buy side prices have decreased steadily for MSRs during 2008 - 2009. This drop in prices and corresponding increase in yields has generated interest from private equity and hedge funds that have positioned their servicing platforms for non performing loan purchases. To date, the volume of purchases from this group has not been significant but this will increase during 2010. However, there is a huge amount of unsold inventory of MSRs and much of it has been capitalized at levels that are significantly above the current market multiples. It remains to be seen whether a significant number of sellers will be willing to unload MSR portfolios that are underwater in 2010.  It is MIAC’s opinion that MSR sales will increase from the 2009 level due to this backlog in inventory and gradual rise in interest rates. We believe that the improvement in the market will not be broad based and that much of the sales will be done based upon very selective buyer criteria and with institutions strong enough to sell into a weaker marketplace.

MIAC is currently working with several institutions that have interest in purchasing portfolios with the following profiles:

• Subprime MSR portfolios - all sizes.
• Large Conventional and Government MSR Portfolios (over $2 billion in UPB) – southwestern states
• Medium sized FNMA, FHLMC MSR Portfolios - ($200 million - $1 Billion UPB) – strong counterparty risk sellers
• High delinquent, seasoned GNMA ($100- $200 million) – no Rust belt states
• Small FNMA/FHLMC portfolios in Florida and contiguous states
• Private Investor portfolio – no advance requirements 

If your institution is considering its strategic MSR sales options MIAC would welcome the opportunity to discuss

the MSR sale opportunities currently available in the marketplace plus any MSR risk management strategies that

you may be considering.

Please call Dan Thomas, Managing Director, Asset Sales Group
212-233-1250 ext. 240
dan.Thomas@miacanalytics.com