Freedom Mortgage dominates the MSR market

These latest offerings come on the heels of an active year in 2021 on the MSR front, which new data shows was dominated by one lender that can be named: Freedom Mortgage.

The new MSR package being marketed by MAIC is composed of 17,609 loans, most of which are Fannie and Freddie mortgages, with Ginnie-backed loans composing less than 8% of the package by loan volume. The average loan size, according to the MSR-offering bid documents, is $353,763, and the average FICO credit score of the borrowers is 750. The servicing-fee cut is set at 0.258%, with the average interest rate on loans in the MSR package at 3.023%.

Slightly more than 56% of the loans in the servicing package were originated in California, based on principle balance. The other leading states for loan originations for the MSR bundle are Washington, 12.27%; Illinois, 5.34%; and Oregon, 4.27%.

Combined, the two MSR bulk offerings kicking off the start of the year, with loans valued in total at more than $16 billion, are a sign that the MSR market is on a roll right now.

“We’re approaching … a peak [in the market] again,” said Piercy. “We’ve been on the phone … advising our customers that this is happening. 

“We’re … seeing values trending up, and I’m pretty bullish on this for the foreseeable future.”

Rankings released recently by New York-based mortgage data-analytics firm Recursion offer some insight into the state of the MSR market and its major players as the new year begins to unfold. 

Leading the pack on multiple fronts is Freedom, which bills itself as the leading Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) lender in the country. That also explains, in part, Freedom’s role as a leading servicer in the Ginnie Mae market as of year-end 2021. 

Ginnie’s unique program

Ginnie serves as the government-backed securitization pipeline for loans insured by government agencies that provide loan-level mortgage-insurance coverage through their lending programs. Unlike Fannie and Freddie, however, Ginnie does not purchase loans. 

Rather, under the Ginnie program, lenders originate qualifying mortgages that they can then securitize through the agency. Ginnie guarantees only the principal and interest payments to purchasers of its bonds, which are sold worldwide. The underlying loans carry guarantees, or a mortgage insurance certification, from the housing agencies approving the loans — which include single-family mortgages guaranteed by the FHA, VA and U.S. Department of Agriculture.

The holders of Ginnie Mae MSRs, primarily nonbanks today, are the parties responsible for assuring timely payments are made to bondholders. And when loans go unpaid due to delinquency, those servicers still must cover the payments to the bondholders. 

“Ginnie Mae as an organization, their function is to a make sure that there’s a market for buying these Ginnie Mae bonds, and then they have to manage the servicers to ensure that the integrity of the bonds is maintained,” Piercy explained. “The servicer retains the obligation to pass through the principal and interest to the bondholder.”

Under Ginnie’s program, then, lenders can securitize through the agency qualifying loans they purchase or originate, and then they can choose to retain or sell the servicing rights to the loans backing the Ginnie Mae securities issued. 

That’s where Freedom Mortgage shines, based on information provided by Recursion. In terms of Ginnie Mae securitizations, including new issuance and net MSR purchases, Freedom is by far the largest Ginnie servicer.

As of the final month of last year, the lender controlled 13.2% of Ginnie Mae’s $1.95 trillion outstanding servicing book of business — with a $261 billion balance comprised of both new-issuance securitizations and net purchases, according to Recursion’s data.

The figures for the other Ginnie servicers among the top five — again, based on new issuance and net purchases — as of the same time frame are the following:

• PennyMac Financial Services, $222 billion, 11.2%.
• Lakeview Loan Servicing, $203 billion, 10.3%.
• Wells Fargo, $125 billion, 6.4%.
• Quicken Loans, $101 billion, 5.1%.

Diving down into the numbers a bit, the total volume of newly issued Ginnie Mae securities year to date through Dec. 1 last year stood at $780 billion, including $102 billion for the leading issuer, Freedom. The other leaders in that category:

• PennyMac Financial Services, $96 billion
• Quicken Loans, $56 billion.
• Lakeview Loan Servicing, $45 billion
• Caliber Home Loans, $26 billion.

Li Chang, founder and CEO of Recursion, points out that Wells Fargo “only delivered $19 billion in new issuance,” to the Ginnie market year to date through Dec. 1, 2021 — far less than Quicken Loans. But “Wells has a huge legacy book” of Ginnie MSR business, she added, so it ranks above Quicken in Ginnie-servicing market share based on the lenders’ outstanding loan balances.

Freedom also was the top buyer of Ginnie MSRs from other servicers over the 11-month period, based on loan volume, at $71.2. billion in net purchases, followed by Lakeview Loan Servicing, $50.4 billion; Mr. Cooper (formerly Nationstar Mortgage), $21.7 billion; and Carrington Mortgage Services, $7.3 billion.

Loan delinquency rates

The loan-delinquency rate for Ginnie loans in Freedom’s MSR portfolio as of Dec. 1 of last year was 9.7% — representing all loans 30 days or more past due. That’s down from 14.3% in 2020, the initial year of the pandemic. Freedom declined to comment for the story.

Freedom’s late loans accounted for 22.1% of all outstanding loans on Ginnie’s books that were 30 days or more late as of early December 2021, the Recursion data shows. In general, nonbanks reported higher delinquency rates for their Ginnie MSR portfolios than did banks. Trailing Freedom’s double-digit figure on that measure are Lakeview Loan Servicing, with an 11.4% share of the Ginnie late-loan pool; PennyMac, 8.2%; Mr. Cooper/Nationstar Mortgage, 6.4%; NewRez, 4%; and Quicken Loans, 3.1%. 

“Banks typically have lower delinquency rate than nonbanks,” Chang said, “as they have the access to capital to repurchase delinquent loans out of Ginnie Mae pools.”

Piercy explained that once a loan in a pool of Ginnie-securitized loans is 90 days past due, the servicer has the right to buy it out of the pool at par and modify it as needed because that lender now owns the loan. If the lender can then get the borrower to make six monthly payments in a row, it “can reissue that loan into a Ginnie Mae security” and earn a profit on the spread.

“The conventional-loan world is much different than the Ginnie world because of the inherent risks tied to the credit around Ginnie Mae servicing, versus conventional servicing,” Piercy said. “And why is that? 

“[With] first-time homebuyers, low down-payment programs, the demographics [of Ginnie loans] are such that you’ve got a greater propensity to fall into a default category.”

In the bigger picture, servicing rights for Fannie Mae and Freddie Mac loans also can be bought and sold, just as the MSRs for loans carrying Ginnie Mae’s stamp are bought and sold. So, Recursion also provided a ranking of all agency MSR transfers — which includes sales and purchases of Freddie, Fannie and Ginnie MSRs.

And, once again, the leading purchaser year to date through Dec. 1 of last year was Freedom Mortgage, with $143.4 billion in total agency MSR purchases, Recursion’s data shows. That includes $40 billion in Fannie Mae servicing rights, $32 billion in Freddie MSRs and $71 billion in Ginnie MSRs.

Freedom’s all-agency MSR purchases over the period are double its closest rival: PHH Mortgage, at $68 billion. Trailing PHH in the category are JP Morgan, $62 billion; Lakeview Loan Servicing, $51 billion; and Matrix Financial, $46 billion.

Piercy stresses that the MSR market is fluid in terms of sales and purchases, and for varied reasons. So, he cautions against drawing conclusions out of context from figures like delinquency rates, existing market share, or any lender’s ranking relative to another.

“You know, there’s a lot that can be involved, and different lenders are buying and selling MSRs for various reasons, even if they’re a net buyer,” he said. “They are buying or selling for portfolio management. Maybe they need to improve a [borrower-class] profile, or maybe they’re not having success in recapturing [refinancing] a certain profile. 

“So, they’ll strip that out and try to sell it [those MSRs] to someone who thinks they can do it better. I mean, that’s what the market really is all about.”