Much of the decline in servicing income was from valuation-related losses for mortgage servicing rights.

Issues stemming from the war with Iran helped to push interest rates on mortgages up last week.

"Mortgage rate volatility, higher than expected refinancing activity and elevated FHA delinquencies pressured near-term performance," said Glen Messina, chair, president and CEO of Onity Group.

While UWM has repeatedly raised its bid price and made other concessions, Two Harbors has opted to move forward with an acquisition by CrossCountry Mortgage.

Declining interest rates in January and February helped to push refinance business up, but not enough to offset the seasonal decline in purchase-mortgage lending in the first quarter.

“There’s probably more capital out there than what can truly trade on the MSR side,” said Chris King, a senior vice president of MSR channels at Rocket Mortgage.

Glass half full: Originations surged on an annual basis in the first quarter. Glass half empty: Lending declined on a quarterly basis as interest rates jumped in March.

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.

Borrowers pulled back in March as interest rates on mortgages increased, but demand improved after rates fell at the end of March.

“The market is forgetting how bad it can get because it’s been good for so long,” said Brian Simon, a managing director at Bungalow Funding, an MSR investor.