Interest Rates, Mortgage Lenders & MSRs
- Feb 15, 2024
- 6 min read
Updated: 6 hours ago
February 15, 2024 | Premium Service | In this issue of The Institutional Risk Analyst we delve into the world of interest rates and residential mortgage credit as Q4 2023 earnings conclude. The largest residential mortgage issuers had decent quarters, though mostly due to servicing income and falling leverage. Treasury Secretary Janet Yellen frets about the systemic risk from nonbank servicers, but the chief challenge for the industry is a lack of new loan origination volumes, high financing costs and a dwindling group of bank lenders.
Truist (TRU) stepped back from lending to nonbanks in December 2023, Inside Mortgage Finance reports, mostly because of a lack of demand for warehouse credit from lenders. Some bank lenders are backing away from smaller nonbanks, which are disappearing rapidly into acquisitions or liquidations. With short-term loan warehouse rates around SOFR +1-1.5%, most lenders remain underwater on their production for sale into MBS.
Fair value marks for mortgage issuers in Q4 showed the impact of falling interest rates in December. Note that the entire group reported down marks on mortgage servicing rights (MSRs), with the exception of Mr. Cooper (COOP). The ebb and flow of prepayments, acquisitions and other adjustments make following the exact value of mortgage servicing assets difficult. Suffice to say that COOP continues to be a buyer of MSRs, along with Carrington Mortgage, Rithm Capital (RITM) and Freedom Mortgage.
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