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.
Prices for mortgage servicing rights remain strong as the supply of servicing for sale is declining and investors are hungry for more. MSRs tied to both low interest rates and high interest rates are being met with sustained demand.
MSR buyers believe that there will be plenty of supply of the asset this year as mortgage originators face difficulties from high interest rates. UWM, the largest lender in the industry, is willing to sell if the price is right.
Lenders are facing a tough market for originations, helping to prompt sales of servicing. The supply of MSR is coming both from older vintages with interest rates well below current rates and new production in which a lender might not want to hedge the MSR.
Some MSR buyers are offering exceptionally strong bids for servicing, counting on being able to recapture borrowers when interest rates drop. The high bids are creating some complications for sellers and MSR valuations.
MSR bids are currently largely rational, though a few packages sold in recent weeks at unexpected prices, according to Brian Simon, a managing director at Bungalow Funding.
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