1st Quarter 2019 Bulk and Co-Issue Market Update:

 

The first quarter of 2019 saw rates continue the decline that started in December.  Overall for the quarter we saw primary mortgage rates move from a peak of 4.57% on 1/23 to a low of 4.06% on 3/28 (Bank Rate Fixed 30Yr index).  The 4.06% level is the lowest we have seen since January 23rd 2018.  Overall we saw the 10yr treasury yield drop as well starting the quarter out at 2.685% and ending the quarter at 2.406% for a 27.9bp drop during the quarter.  Overall the average for the 10Yr Treasury was at 2.649% for the quarter which is very similar to the levels we saw in the 1st quarter of 2018 with the 2018 levels at an average of 2.755%.  On short term rates which typically impact float earnings and advance costs, we saw rates decline over the quarter as well with the 3 Month Libor rate dropping 21.6bp over the quarter and ending at 2.595%.  This level is still higher than we saw at the beginning of 2018 when the 3 Month Libor was at 1.695%, so generally speaking servicers should be able to get better earnings from their servicing today even though prepayments are increasing to levels similar to where they were last year.

 

Bulk - Overall within the 1st quarter IMA observed a total of 18 portfolios within the market (IMA, Other Brokers, or direct deals) with a total UPB of $92.6 billion.  The market has continued to see strong participation from bidders as well as a tightening of the bid ranges on the portfolios.  On the conventional portfolio’s we typically saw 8 to 12 bids collected and on GNMA portfolios we have seen 2 to 5 bidders.  During the quarter, Sellers’ pricing expectations were exceeded via the auction on deals >$1b.  Bidders’ models reflected the economies of scale realized via a larger deployment of capital in addition to the lack of supply in bulk portfolios of size.  

 

  • Multiples for current par note rate 6 to 18 month seasoned 30 year conventional MSR’s are at a 4.8 to 5.4.  Multiples for current par rate 6 to 18 month seasoned 30 year governments are at 3.6 to 4.2.

  • Effective Multiples (Net Multiples) – multiples may net down by .10 to .25 of a multiple because of terms in the LOI or loan exclusions.

  • Conventional Yields – purchaser unlevered yields for conventional are currently 9% to 11% depending on the characteristics of the portfolio.

  • Government Yields – purchaser unlevered yields for government are currently 11% to 14% depending on the characteristics of the portfolio.

 

Co-issue - We continued to see steady pricing on the co-issue market as buyers have become comfortable with their current pricing grids.  Currently there are between 12 and 14 co-issue buyers for conventional MSR’s and 2 to 4 buyers of government MSR’s.

 

  • Multiples for current par note rate 30 year conventional co-issue MSR’s are between a 4.75 and 5.35 base multiple.  Multiples for current par note rate 30 year government co-issue MSR’s are 3.4 at 19 bps of service fee, 3.8 at 31.5 bps of service fee and 4.2 at 44 bps of service fee with excess at a 3 multiple.

  • Effective Multiples (Net Multiples) – Both conventional and government co-issue bids have many loan level price adjustors that will net down the actual purchase price.  For conventional we see net multiple paid at a quarter to half multiple lower than the base.  For governments we see net multiple paid at a half to full multiple lower than the base.

  • Conventional Yields – purchaser unlevered yields for conventional are currently 9% to 10% depending on the characteristics of the portfolio.

  • Government Yields – purchaser unlevered yields for government are currently 11% to 12% depending on the characteristics of the portfolio.

 

While the number of trades during the quarter was similar to the 4th quarter of 2018, the market seemed to be accepting of the new rate dynamic and buyers and sellers had similar opinions of value during the period.  We continue to expect more activity within the bulk servicing market as we move into the second quarter as companies need for liquidity increase.  Many companies are looking to raise capital for acquisition of additional production capabilities as well as cash needs for taxes and other initiatives.  The publically auctioned trades continued to see good participation from the market as there were multiple bids on each auctioned portfolio.  Additionally there is continued strong demand from buyers to see deals on a direct basis.  Co-Issue activity has picked up as well with co-issue pricing getting stronger compared to aggregator pricing as well as introductions of several trading platforms within the market to assist with the ease of transaction within the co-issue space.

2019 MSR Opportunities

 

Bulk – Overall IMA tracked a total of ninety bulk trades with a UPB of approximately $230bb during the year of 2018.  Of these trades approximately one third had a UPB of $500mm or less in size.  These portfolios garner much less buyer interest due to the size of the portfolios. On these smaller size conventional portfolio’s we typically saw 2-4 bids, while GNMA portfolios we have seen 1 to 3 bidders.  Seller’s pricing expectations were generally lower than the larger portfolios which presented buyers the opportunity to purchase these portfolios at yields of 1% to 3% higher than the larger portfolios with similar characteristics.  IMA believes Sellers of these portfolios will increase into 2019  due to the need for cash and lower origination revenues which will provide bulk buyers opportunities to purchase portfolios at a slight discount of current market.

 

Co-issue – Overall IMA tracked a total of four hundred and twenty five monthly co-issue sellers with a total UPB of approximately $180bb sold during the year of 2018.  IMA is looking to grow and enhance this market for its co-issue selling and buying clients.  IMA plans on doing this through its electronic co-issue MSR trading platform eMSR.  The platform brings sellers and buyers together to deliver competitive pricing and operating efficiency within the co-issue market place. Through our platform, IMA provides its clients a sophisticated data import and export service along with a best execution delivery between various co-issue servicing executions with multiple investors.  Optimizing execution and profitability in today’s environment requires frequent comparative analysis of - and re-tooling to - new terms and outlets. 

 

eMSR - Seller gets use of one Unified platform for Fannie, Freddie and Ginnie with Buyer’s participation.

 

Access to IMA’s LendersOne member relationships.  As a part of LendersOne, Sellers have additional financial incentives to sell through the eMSR platform.  66 LendersOne members are currently selling approximately $3 billion per month via co-issue.  Opportunity of a relationship with these 66 clients as co-issue buyer with access $2.85+bb in monthly conventional co-issue volume and $600+bb in monthly government co-issue volume.

 

Access to IMA’s additional exclusive co-issue seller relationships that have delivered up to $3bb per month in co-issue volume in any one given month.

 

Spot Bulk Sales

  • Sellers now have the ability to obtain a spot bulk bid from co-issue Buyers that will compete with daily mandatory aggregator bid programs.  This will increase Buyers monthly MSR acquisition volumes from its Sellers.

 

Web based dash board and sales tracking

  • Provides management with a tools to create custom slick and sophisticated reports and track all monthly sales to Buyer.

 

Data Management Services for Sellers and Buyers

  • Established and proven Web based tool takes the pain out of data scrubbing, error checking, and combining collateral information from disparate sources.

Allows sellers to securely upload and transfer encrypted servicing data files in a streamlined and unified process required by FNMA SET/SMP & FHLMC CSRx/FAST and Buyers.

 

Co-issue Transaction Engine for Sellers and Buyers

  • Ability for the Buyer to upload daily, weekly, monthly or quarterly pricing grids

  • Allows Sellers to run best execution between each agency along with Buyer grids prior to committing to agencies.  This will allow a more apples to apples comparison between each agency co-issue execution vs aggregator executions increasing co-issue buyer volumes.

  • Allow Sellers to manage sales to Buyer’s required delivery characteristics.  Buyers get the loans they want and expect from each Seller.

  • Allows Sellers to run a daily loan level mark-to-market on closed loans or pipeline using actual MSR co-issue grids vs an MSR broker opinion.  At some point Buyers may be able to view Sellers pipeline or closed loans not yet committed to Agencies.

  • System generates reconciliation report and closing document for Seller and Buyer for funding.  Checks and reconciles funding discrepancies between Seller, Buyer & agencies.

 

Co-issue Brokerage, Administrative & Transaction Management Services for Sellers and Buyers

  • Continual assistance to both Buyer and Seller in all aspects of co-issue transaction pre and post-sale.

1125 Seventeenth St., Ste 2360, Denver, CO 80202 

© 2014 by Interactive Mortgage Advisors, LLC.          

 

All Rights Reserved