New York, NY (March 26-27)
The annual IMN Residential Mortgage Servicing Rights Conference attracted more than 400 participants to New York City, 180 of them from banks, non-bank originators, mortgage investors, hedge funds, and other institutional investors. The IMN forum is the only opportunity on the calendar for owners and administrators of mortgage servicing rights to get together for a dedicated day and a half and discuss nothing but mortgage servicing rights. Given our climate of heightened regulatory scrutiny and low interest rates, it is even more important for the $10 trillion MSR industry to gather and examine the latest developments.
Relax Basel III Capital Restrictions
Executives attending the forum agreed that banks want to see Basel III capital restrictions loosened because it would make holding mortgage servicing rights easier and stop depositories abandoning the servicing business. Flagstar Bank executive vice president and COO, Lee Smith, revealed that federal banking regulators are considering a plan that would boost the percentage of Tier 1 capital that can be based on mortgage servicing rights (MSRs) from 10 percent to 25 percent and ease the pressure on banks to sell MSRs. He pointed out that Flagstar, which has a 10 percent limit, is constantly selling because of the more restrictive capital treatment its retained MSRs could undergo undergo based on current Basel II capital rules. If the limit was changed to 25 percent, he maintained that the bank could be considerably more patient.
Other Shifts in the Market
Predictions for the year also discussed at the conference included a higher profile and liquidity for Ginnie Mae MSRs. Houlihan Lokey‘s managing director of capital markets, Jeffrey Levine, asserted nonetheless that Ginnie MSRs are not an easy asset class.
Stan Middleman, president and CEO of Freedom Mortgage Corp. highlighted the greater likelihood of mortgage rate volatility this year. Because of this, he considers hedging to be particularly important in this stage of the cycle.
Rate volatility is unlikely to deter buying, however, according to Tom Millon, president and CEO of the Capital Markets Cooperative, a subsidiary of Computershare.
Panel discussions revealed that mortgage servicers remain unsure about how to leverage the increasing use of electronic notes and other digital mortgage tools by lenders and the secondary market. New opportunities are emerging for servicers to reconsider both their internal operations and their interactions with borrowers due to the growing use of third-party data sources and automation to make origination processes more efficient. Simon Moir, senior vice president at vendor eOriginal, pointed out that these opportunities are largely driven by the originators, but that success depends on everybody embracing the digital mortgage, instead of simply following the originators’ lead. He said that e-notes are gathering momentum in housing finance with major players such as Quicken Loans and Fannie Mae promoting the use of digital mortgage technologies.
Fannie Mae’s director of e-mortgage strategy and operations, Shane Hartzler, noted that subservicers are revealing a greater readiness to work with master servicers approved for Fannie’s e-notes. Some servicers and lenders are slow to accept the automation of the closing process and all that comes after it because manual work is still required due to differences in jurisdictions’ rules regarding closings, recordings, and security instruments.
Although a partially automated process is often perceived as being more difficult to maintain than a manual one, Wells Fargo senior vice president Brian Webster revealed that there are few differences between them, and that a partly automated process may offer advantages.