Residential: Prices in the MSR market are strong — for pristine portfolios

Prices in the MSR market are strong for pristine portfolios

“Strong” is an adjective frequently used to describe the prices paid for residential mortgage servicing rights (MSRs) in recent months. Beyond the glimmer, however, is the reality that only specific slices of overall portfolios are trading very well, and a lot of MSRs out there are not going to market, according to advisory firm MountainView Financial Solutions, a Situs company.

“If there’s an overriding theme in our discussions with clients right now, it’s ‘peeling back the onion’ and showing exactly where there’s strength in pricing in the market and where you need to keep your eyes open,” said Mark Garland, Managing Director of Analytics and head of MSR valuation at MountainView. “These are not cautionary conversations per se, but it’s honest talk about how parts of a portfolio don’t meet the ‘all prices are strong’ theme.”

Many factors need to be considered before deciding what to sell in hopes of receiving high bids, according to Garland. He said the firm has been seeing some portfolios that are very diverse in their range of coupons, borrower credit scores and consistency of cash flows, while the real demand is for pristine portions of portfolios.

“Prospective sellers are often combining a wide array of product and risk, which in reality mirrors the holdings of most portfolios, but that’s not what’s actually selling today … that’s not what’s in demand,” explained Garland. “When you have 30-40% of a portfolio that doesn’t match up with the pristine/clean MSRs and force someone to entertain the idea of buying that entire portfolio, prices become very different, and you can be very disappointed.”

“The reality is that today’s buyers are sophisticated in modeling and understanding risk,” he added. “As a seller in a price negotiation, you’re re not going to get them to bump up their bid on MSRs that have significant risk. On pristine MSRs, you might move them to sharpen their pencil, but they’re not going to get fooled by risk.”

Garland emphasized that this means prospective sellers really need to know exactly what is selling and what isn’t. They need this information to make smart sale selections and have their portfolios priced right before they go to market.

“You have a much better chance of closing if you know ahead of time where the bids are likely going to come in at,” he said. “That way you’re not facing sticker shock. You still might be disappointed upon receiving bids, but you won’t be uninformed.”

Garland is one of three presenters for MountainView’s MSR Asset Monthly Snapshot webinars, where the firm discusses the interest rate environment, MSR pricing levels, MSR market activity and MSR risk management for the previous month. In the next webinar on Wednesday, Aug. 8 at 3 p.m. EDT, the presenters will focus on exactly where the strength in pricing is right now.


U.S. home sales fall as prices hit record high

U.S. home sales unexpectedly fell in June, posting their third straight monthly decline as a persistent shortage of properties on the market drove house prices to a record high, likely sidelining some potential buyers. 

The National Association of Realtors said on Monday existing home sales slipped 0.6 percent to a seasonally adjusted annual rate of 5.38 million units last month. May’s sales pace was revised down to 5.41 million units from the previously reported 5.43 million units.

Economists polled by Reuters had forecast existing home sales gaining 0.5 percent to a rate of 5.44 million units in June. Sales rose in the Northeast and Midwest, but fell in the West and populous South.

Read more: Reuters


CFPB nominee promises pro-business approach at Senate hearing

The Trump administration’s pick to run the Consumer Financial Protection Bureau said she would pursue the “proper balancing of all interests,” including consumers and financial companies, signaling she would continue a shift in the bureau’s operations from the Obama era.

Kathy Kraninger, a senior official at the White House’s Office of Management and Budget, faced grilling by lawmakers at the Senate Banking Committee last Thursday, her first opportunity to publicly present her views on consumer-finance oversight. Since Trump-appointed officials took control of the CFPB in November, the agency has sought a friendlier approach to the companies it regulates, a change from the Obama administration.

Also attending the confirmation hearing was Kimberly Reed, a nominee to run the Export-Import Bank, which smooths export deals between U.S. manufacturers and overseas buyers. Unlike Ms. Kraninger – who faced opposition from Democrats – Ms. Reed drew bipartisan support from lawmakers who are eager to restart the agency, which has been in limbo in recent years because it lacked Senate-confirmed leaders. Ms. Reed had already been approved by the committee for another senior position at the agency.

Read more: Wall Street Journal


How will the new tax law shake up the housing market?

Just a couple of years ago, homeownership rates were low, and many analysts were blaming millennials. Burdened by more student debt than previous generations and typically inclined to marry and start a family later in life, millennials were a factor in 2016 homeownership rates falling to the lowest levels recorded by the U.S. Census Bureau going back to 1965.

What a difference a couple of years makes! Homeownership is rising, and millennials are leading the way. But will the new tax law shake things up?

The recently passed $1.5 trillion tax reform legislation cuts individual tax rates for eight years starting this year. Most consumers will see more money in their paychecks. Despite some recent jitters on Wall Street, the economy is solid, and unemployment rates remain low. Corporate tax cuts are expected to create more jobs, and small-business owners are optimistic about the future. All these factors could improve demand for housing as aspiring homeowners decide now is the time to take the plunge.

But not everybody is a winner under the new tax code. Starting this year, mortgage interest deductions are capped at $750,000, down from $1 million under the previous tax code. The cap reduction won’t affect most home purchases, but at the higher end of the market, some homeowners could feel the squeeze. The cap reduction might also make homeowners whose mortgage exceeds $750,000 less inclined to move since mortgages established before the law took effect are grandfathered in at the previous cap. That could reduce housing stock in some areas, but the effect should be limited.

Read more: Forbes


Portland’s hot housing market is cooling off

Doug Wicks put his Northeast Portland house on the market on Sunday and had a couple of offers by Tuesday. There was no bidding war. No all-cash offers from developers. No plates of cookies, like a neighbor had received from a desperate buyer hoping to gain an edge. A year ago, the same house probably would’ve attracted a pile of offers, most of them over asking price. But Wicks isn’t sweating it.

“Two offers certainly meets my needs,” said Wicks. “We’re going to get asking price or better. We’re thrilled. I don’t need cookies.”

Summer has brought a dramatic shift in the Portland-area housing market. Sales have slowed. The inventory of homes is growing. Prices continue to climb, but not nearly as fast as in recent years.

Longtime real estate brokers and market-watchers recognize this new normal as something approaching — well, normal. And that, they say, would be a welcome return to something Portland hasn’t seen since before the housing bubble started to form back in the mid-2000s.

Read more: Oregon Live


After storm, foreclosures in Puerto Rico stopped. They’re starting again.

The foreclosure machine that ground to a halt in Puerto Rico after the devastation caused by Hurricane Maria in September is slowly cranking up again. Island residents who fell behind on their payments are facing creditors ranging from Wall Street to the federal government.

Over the last four months, nearly 300 new foreclosure actions were filed in federal court in San Juan and in local courts across the island.

Among the firms filing cases are an investment firm controlled by Credit Suisse, one in which the private equity firm TPG Capital is an investor and banks like Citigroup and Santander. Even the United States Department of Agriculture, which has underwritten more than 3,000 mortgages in mainly rural areas of Puerto Rico, has begun to foreclose on delinquent borrowers.

The filings are some of the first in Puerto Rico since several federal agencies – including the U.S.D.A. – imposed moratoriums on new foreclosures and legal actions in existing cases after the hurricane devastated the island’s electrical grid. But the moratoriums have begun to expire, setting the stage for what housing advocates have feared could be a wave of home foreclosures in the United States territory of 3.4 million people.

Read more: New York Times


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