Bulk Msr Supply Shifts From Survival Sales To Strategic Portfolio Moves

There’s been a noticeable shift in the nature of bulk mortgage servicing rights (MSR) supply — from companies selling assets out of necessity to those making more strategic portfolio moves, according to industry executives. 

“Back in 2022 and 2023, we saw a fair amount of selling that was related to originators and servicers that needed to just raise funds to support their business operations through that cycle,” said Nick Letica, chief investment officer at Two Harbors Investment Corp, during the IMN’s Mortgage Servicing Rights Conference on Thursday in New York. “I would characterize trades these days as being more strategic than they are necessary for a lot of people.” 

As an example, Letica said Two Harbors sold $30 billion in unpaid principal balance (UPB) during the last quarter to a new client on a retained basis — a transaction that also established a subservicing relationship for the company.

Overall, the MSR bulk market volumes have slowed sharply since the high-velocity trading environment of 2022 and 2023. Letica estimates that while roughly $700 billion in MSRs changed hands during those peak years, today’s market is running at “about 35% of that pace.”

MCT’s September MSR Market Monthly Update shows that as mortgage rates began declining in early September, bulk MSR offerings surged past $50 billion and could exceed $100 billion in October. MSR holders seek to capitalize on near-record valuations before rates fall further, with moderately seasoned portfolios with coupons below 5% continuing to trade at 5.00x–5.50x servicing fee multiples, with demand and pricing expected to stay strong through the end of 2025.

Navigate quality and risk

On the origination side, Preetam Purohit, head of hedging and analytics at Embrace Home Loans, said the highest-quality loans are being quickly absorbed by correspondent lenders.

“Then remains your lower FICO, that’s kind of what we are retaining. Ultimately, that’s what’s going to go into the bulk market, so what we’ll see is a much lower quality supply coming in, directly through the bulk market,” Purohit said in a session during the IMN conference.  

From a portfolio management standpoint, Vince Zenner, managing director at Rate, noted that he doesn’t expect larger originators to keep issuing major bulk pools given some “super high” prepayment speeds seen among firms that sold or transferred servicing to others.

“People felt like they got burned,” Zenner said. “There’s going to be a decision to make at least for the originators putting out new supplies: where are you in the stack? How much is your capability? That retained-release equation is tilted way more towards retained, the bigger you get. If you don’t view it that way, it’s a mistake” 

Evolving behavior

Zenner said current-coupon assets have seen higher prepayment speeds due to what he described as a “behavioral change” among originators and subservicers aggressively working to recapture borrowers through refinancings — a shift that has driven more investment in infrastructure and technology.

“Some of these behavioral changes I don’t think are quite captured yet in the prepayment modeling,” Zenner said. “We have our own jumbo product on the securitization shelf. The recapture rate on our jumbo products is over 90% – these are $15,000-$20,000 commission checks for loan officers every time they do one.”

Aaron Wade, chief investment officer at Onity Group Inc., said that from a financial buyer’s perspective,  COVID-era loans with borrower coupons between 3% and 4% remain the most attractive assets.

“They trade at extremely attractive levels, and if the product has the right profile, you’ll also see some of the big money center banks jumping in,” Wade said.  

Current-coupon GSE loans, by contrast, tend to appeal more to “integrated players” — large, well-known lenders expanding their servicing portfolios to reload their recapture pipelines. Meanwhile, the Ginnie Mae MSR market remains highly concentrated, with just two or three players controlling 60% to 70% of the market, Wade added.