Skip to main content

A Repositioning Of Players In The MSR Market Is Underway

The mortgage-servicing rights (MSR) market remains robust as we turn the corner into 2024, and though it is expected to slightly underperform 2023, the market is still projected to notch healthy trading volumes in 2024 — hovering near the $1 trillion mark for the fourth year in a row, market observers forecast.

But the MSR market also appears to be in the midst of a rebalancing act marked by the growth of third-party private capital and an overall consolidation of market players, according to some industry experts.

For at least the past five years, according to market data, the MSR sector has been increasingly dominated by nonbanks — with a good portion of the loan balance they service at historically low legacy rates.

Mortgage-data analytics firm Recursion reports that in of 2019 nonbanks held agency MSRs totaling $3.445 trillion, based on the outstanding balance of loans serviced. As of January 2024, total agency MSRs held by nonbanks totaled $5.882 trillion — a $2.437 trillion increase, much of it acquired and retained during the boom origination years in 2020 and 2021.

MSR holdings for banks over same period remained essentially flat, however, according to Recursion’s data — at $2.773 trillion in 2019 versus $2.747 trillion as of January 2024, again based on the outstanding balance of loans serviced. 

Among the major stories in 2023 was Wells Fargo’s efforts to downsize its mortgage footprint, including its MSR portfolio. The bank’s third-party servicing portfolio (excluding loans subserviced for others) shrank by more than $100 billion last year, going from roughly $667 billion at the start of 2023 to $560 billion at year’s end, according to its financial filings.

Well’s MSR portfolio was shrinking even as the MSR market continues to expand, however. In 2019, total agency MSRs outstanding, based on agency loan balances serviced, stood at $6.219 trillion, Recursion data shows. As of January 2024, that figure had jumped to $8.636 trillion.

Going forward, however, if 30-year fixed interest rates continue to hover in the 6% range over the course of this year, new loan originations are expected to remain muted. Redfin reports that nearly 79% of homeowners now have rates under 5%. 

Market observers say if rates do stay higher for longer, that will continue to build pressure for many nonbanks to use MSRs as a liquidity tool in managing their balance sheets — which will promote healthy MSR trading volume.

“[Since Covid], the IMB [independent mortgage bank] group has retained a lot of MSRs that they had not retained historically as a group,” said Nick Smith, founder, managing partner and CEO of private-equity firm Rice Park Capital Management (RPCM), an active MSR buyer. “And they’ve also been huge sellers of servicing over the last three years [often to each other].” 

The volume of MSR trading over the past three years has hovered around $1 trillion per year, nearly twice the volume of trading from 2015 to 2020, when the average was around $535 billion each year, Smith points out.

“There are some [smaller] companies that have sold a lot of their MSRs and now have to turn that corner to real profitability, and they don’t have that piggybank to draw from,” said Charley Clark, a senior vice president and mortgage warehouse finance executive at EverBank (formerly known as TIAA Bank). “The big guys [large IMBs] not only have that [access to capital], but they have strong cash positions as well.

“Now they [the struggling IMBs] have to make money.”

Clarke, too, notes that there has been “a repositioning of MSRs” in the market during the current economic cycle — pointing to Wells Fargo’s mortgage-footprint downsizing. 

“I think we’re probably going to end up with more consolidation,” RPCM’s Smith added. “The total number of firms [IMBs and banks] after this cycle of right-sizing is probably going to be lower. 

“I think the largest firms are going to get bigger, so they’re going to have a bigger share of the market.”

He notes that the biggest sellers of MSRs in 2023 were United Wholesale Mortgage (UWM) and Rocket Mortgage

“My perception is that they are really trying to hold the line on market share, and the way they funded that is through selling a lot of MSRs,” Smith said. 

The largest buyers of MSRs last year, he added, were Mr. Cooper and Lakeview Loan Servicing.

“Those two [Mr. Cooper and Lakeview] were each like three times the next biggest buyers [of MSRs in 2023], so those are the big growers,” Smith said.

January report by Mortgage Capital Trading (MCT) indicates that MSR pricing is holding up in the market, but the dollar size of MSR pools is expected to erode some in the year ahead due to principal paydowns on low-rate legacy loans as well as the trend of many lenders retaining less servicing on new production.

“As borrowers make their regular payments [on 2020 to 2022 vintage loans], the natural principal payments make up approximately 40% to 60% of total principal balance runoff, which includes portfolio payoffs,” the MCT report states, adding that many lenders also “are currently retaining only about 20% to 30% of their production, which barely covers the principal balance that ran off.”

“This is the primary driver that is causing the dollar value of portfolios to continue to decline while the basis points values remain level,” the report concludes.

Adding to that math of reduction is the fact that new mortgage production is down considerably from its peak in 2021 — and hence new MSR volume is down as well.

Tom Piercy, chief growth officer at Incenter Capital Advisors (previously Incenter Mortgage Advisors) anticipates that trading volume in 2024 also is expected to be impacted, in part, by MSR sales linked to merger and acquisition (M&A) activity in the lending sector.

“Unless there’s some type of pickup in the forecast for originations, I think you’re going to see still an active M&A market through 2024,” Piercy said in the first of two recent interviews with him. “Many shops will probably look to become part of a larger, more financially stable platform.”

Private Capital

In addition to the depository institutions and IMBs working the ropes as MSR buyers and sellers, there is yet another source of growing MSR demand and capital investment that has been helping to fuel the market’s growth in recent years — and is expected to continue fueling MSR market trading in the year ahead.

“One thing that’s very clear is the group that’s growing is primarily raising third-party private capital [to fund MSR purchases], so firms like us [RPCM] or Onslow Bay Financial [owned by Annaly Capital Managementand more,” Smith said. “So, the growing group is investment firms, and a majority of them are raising third-party private capital to fund that growth.”

These Investor groups typically partner with mortgage companies or own a mortgage company subsidiary and/or work through a network of subservicers with respect to managing the MSR assets they acquire. For example, RPCM subsidiary Nexus Nova owns servicing rights but uses a network of subservicers to service the loans.

“The IMBs that are pure originators, many are still losing money, and as a group, they’ve got large MSR holdings, and they’re continuing to sell those,” Smith said, adding that those IMBs, “still have a fair amount legacy product that has a low coupon.” 

As interest rates trend downward this year —assuming the Federal Reserve backs off its monetary tightening policies — MSRs pegged to loans with current coupons at or “near the money” are expected to see values slip because loan-prepayment speeds will heat up, market observers explain. 

The MSRs on the low-coupon legacy mortgages, many with rates as low as 3%, however, are expected to remain largely immune from the value pressures prompted by anticipated rate drops over the next year, and they generally will command better pricing.  

“The private-capital category continues to grow as MSRs continue to become a maturing asset class,” Smith explained. “And so we [RPCM] and many others in our category are raising capital and intend to be kind of permanent participants in this market. 

“I think that’s a trend that’s likely to continue in 2024.”

Mike Carnes, managing director of the MSR valuation group at Mortgage Industry Advisory Corp. (MIAC), agrees that “private money has been a big player, a growing player in the sector,” 

“It’s incredible how much private money is out there that wants to invest in this asset … and is trying to take advantage of those opportunities while those opportunities exist,” he added.

Q4 deal lull

Incenter’s Piercy said the MSR market did slow down a bit in the fourth quarter of last year as interest rates started to decline, adding that “ those last 10 weeks, eight weeks of the [fourth] quarter [last year] absolutely had an impact on pricing and bidding.” 

As interest rates drop, the threat of loan prepayments increases and the returns MSR owners can earn on escrow holdings decline — both of which have a negative impact on MSR pricing. 

“ I think that [the rate dip] caused some people to take a step back and not offer what they were looking to do [on the MSR side],” Piercy said. “And then I think some of the bidders having to hit the pause button [in Q4] while they were doing some capital raise also was impactful. 

“As I’m talking to you today, we’ve gotten through that, and I don’t have any concerns moving into these next six months at this stage.”

Piercy added that as rates decline, assuming that’s the case this year, it’s not all a negative for MRS trading. He said some lenders will find value in acquiring MSRs in a declining-rate environment because of the “recapture” opportunity it presents for refinancing loans.

“We’ve had success when these types of cycles hit in the past with particularly those servicers who are successful at recapture,” he said. “If the rates start dropping, now I can start picking up a little bit of gain on sale through my recapture programs.”

New capital rules

A survey of three advisory firms working in the MSR sector seems to bear out Piercy’s assessment that the market has rebounded from the fourth-quarter 2024 dip in activity. 

A total of eight bulk offerings of agency MSRs are currently in play among the three advisory firms — Incenter, MIAC and Prestwick Mortgage Group, which typically handles smaller MSR offerings under $1 billion, often in conjunction with partner MCT.  

Those eight MSR offerings combined total $14.2 billion based on outstanding loan balances — with at least six of the deals involving IMBs as sellers and six involving average coupons under 3.6% (legacy loans). The largest of the pending deals is a $9.42 billion Fannie Mae/Freddie Mac offering from Incenter Capital Advisors, which also has another $50 billion in MSR deals in various stages of play in the pipeline, Piercy said, with most of those pending deals being privately negotiated. 

Piercy added that nonbank holders of Ginnie Mae MSRs also have to contend with the new risk-based capital rules that are slated to take effect at year’s end. He anticipates that the stricter capital rules could amplify MSR trading volume this year — along with the continuing consolidation of the IMB industry via mergers and acquisitions.

“And now we’ve got a capital-increase requirement, so it’s going to cause, I think, people to definitely investigate, assess and decide [how to deal with the change],” Piercy said. “We’re already seeing some [lenders] that are feeling as it’s probably better just to sell the asset.

“We anticipate there’s going to be a fairly steady flow of that inventory for the Ginnie MSRs through most of 2024. … That’s probably one of our biggest areas of concentration today.”

Carnes agrees with Piercy’s assessment.

“The new GInnie capital rules kicking in at the end of the year,” he said, “are creating pressure on those [Ginnie MSR] portfolios in terms of both pricing and also probably people wanting to get out from under them if they don’t want to deal with that.”


The MSR market will be coping with multiple variables affecting deal sizes and values in the year ahead — among which are the direction of interest rates, new capital rules and the ongoing consolidation of the IMB sector. What is clear already, however, is that there appears to be a repositioning of players in the MSR market underway.

That shift is revealed, in part, in reports prepared by Recursion that rank the top holders of Freddie Mac, Fannie Mae and Ginnie Mae MSRs combined as of June 2023 and again as of January 2024. The rankings include market share (%) and MSR portfolio size — based on outstanding loan balance ($).

As of January 2024

1. Lakeview Loan Servicing: 7.4%, $642,233; 
2. Pennymac: 6.8%, $585,500
3. JP Morgan: 6.6%, $566,005
4. Nationstar [Mr. Cooper]: 5.9%, $513,010 
5. Wells Fargo: 5.8%, $502,662
6. Quicken Loans [Rocket Mortgage]: 5.3%, $460,703
7. Freedom Mortgage: 5.2%, $452,753
8. Newrez: 5.2%, $450,135
9. UWM: 3.2%, $274,119
10. US Bank: 2.5%, $218,014

As of June 2023

1. Wells Fargo: 7.0%, $589,518 
2. Pennymac: 6.5%, $550,152 
3. Lakeview Loan Servicing LLC: 6.4%, $538,728 
4. JP Morgan: 6.0%, $506,340 
5. Quicken Loans [Rocket Mortgage]: 5.6%, $471,860
6. Freedom Mortgage Corp.: 5.4%, $454,998
7. Nationstar [Mr. Cooper]: 4.3%, $364,937
8. Newrez: 4%, $339,676
9. UWM: 3.8%, $319,312
10. US Bank: 2.7%, $225,132

No Comments yet!