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IMA’s Tom Piercy featured in Inside Mortgage Finance state of the flow MSR market article.

Flow MSR Bids Return but Mostly for GSE Product

June 18, 2020

Paul Muolo

Three months after the flow servicing market ground to a halt due to economic damage caused by the COVID-19 pandemic, buyers of newly created receivables are wading into the auction pool once again.

However, there’s a major caveat, according to brokers interviewed by Inside Mortgage Finance this week: Bring your Fannie Mae and Freddie Mac packages only and leave the Ginnie Maes at home.

“Right now, I would say there are at least 15 different co-issuance bids out there,” said Tom Piercy, managing director of Incenter Mortgage Advisors, Denver. “Back in late March there were maybe three and the capacity to get a deal done was a drop in the bucket.”

As for pricing, that’s a different matter.

Piercy estimates that flow MSRs — which are transferred at time of origination — can “generally” sell for 2.5-times the servicing fee or even 3.0-times. “Bids are available for that,” he said of the latter. In quarters past, bids could go 5.0-times or better.

Mark Garland, managing director of SitusAMC, Denver, agreed that bids of 3.0-times are doable today and are a welcome development after several weeks of inactivity, at least on the flow front. “A few weeks ago, you were lucky to get 2.0-times.”

But not all dealmakers are so sanguine about the current state of things. Steve Harris, president of Mortgage Industry Advisory Corp., New York, said the flow market is indeed back, but he’s not so sure about the number of over-eager buyers.

“I think, in general, those selling at low prices might be desperate,” he said. “It’s not like a full return of the market,”

He added: “And I’m not even sure some of these deals can get a sale-treatment,” a suggestion that perhaps too much financing might be involved.

The investment bankers interviewed did not identify potential bidders by name. However, according to figures compiled by Inside Mortgage Trends, the top three buyers in the co-issuance market during the first quarter were Lakeview Loan Servicing, Matrix Financial Services and CMC Funding.

In the first quarter, $49.1 billion of flow MSR product changed hands, the weakest reading since the second quarter of last year. It’s anticipated that by the time the books are closed on 2Q20, the volume will be down significantly from the first three months.

Meanwhile, there are signs of life in bulk MSR acquisitions. Late last week, Phoenix Capital, Denver, announced “Project Anchor,” a bulk auction of $2.43 billion of Fannie/Freddie product.

According to the offering circular, the seller is a “well capitalized institution” based in California. The portfolio boasts an average loan size of $337,000 and a note rate of 3.49%.

Roughly two weeks ago, Incenter Mortgage sold a $4.1 billion Freddie bulk MSR portfolio belonging to Impac Mortgage — but that was a privately negotiated transaction. The buyer was PNC Bank. Other privately negotiated bulk deals are said to be in the works.