Limited earnings potential from originations and ongoing consolidation are likely to keep the supply of MSRs at healthy levels, according to officials at Annaly Capital Management.
Carrington led MSR buyers in the first half of the year, focusing on loans with lower coupons. Bayview Asset Management ranked second, targeting mortgages with interest rates above 6.0%.
MSR investors continue to offer strong bids for both low-coupon and current-coupon assets. Some MSR owners are also adjusting their risk tolerance as volatility in the financial markets has been constant during the Trump administration.
As delinquencies rise, servicers will face increasing obligations for advances to MBS investors. Large servicers are expected to be able to handle the pressure while some smaller servicers could face difficulties.
Certain MSR buyers have been willing to pay lofty prices in recent years, hoping to recapture borrowers when interest rates decline. There are some questions about whether the moves will ultimately be profitable.
Low volatility and actions by the Federal Reserve are expected to help maintain demand for MSRs. Supply will also be constrained, with lenders generating profits and large firms retaining their MSRs.
Demand for MSRs among investors remains steady even as declining interest rates lead to lower valuations for the assets. The supply of MSR for sale could also increase as lenders originate more mortgages.
High MSR prices are prompting some potential buyers to sit out. Prices are being propped up by limited supply and declining servicing costs as big firms invest in technology.
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