The mortgage industry has seen a notable trend emerge in recent months, as servicing companies have begun launching their own investment vehicles

This shift signals the fragmentation of the industry, as companies are now able to offer services to their customers that aren’t necessarily related to mortgage servicing.

The trend kicked off in June of 2020 when Nationstar Mortgage Holdings LLC, a Dallas-based servicer now known as Mr. Cooper Group Inc., unveiled its own investment vehicle called Nationstar Investment Partners (NIP). NIP is a joint venture between Mr. Cooper and a Los Angeles-based private equity firm, and it focuses on real estate investments in the US.

This was followed by Carrington Mortgage Services LLC launching its own investment vehicle, Carrington Capital Investment Management (CCIM), in October of 2020. The company also formed a partnership with a subsidiary of Apollo Global Management, Inc., a global alternative asset manager, to expand their offerings in the residential and commercial lending markets. CCIM aims to provide investments primarily in structured debt securities and residential mortgage loan products.

Another big player in the space is Houston-based servicing company Caliber Home Loans, which recently announced an agreement with M&G Investments to form Caliber and M&G Investment Management LLC. This joint venture will be investing in securitized residential mortgage-backed securities (RMBS) and will serve as a primary dealer for the Federal Home Loan Bank (FHLB).

This recent trend points towards the growing financialization of the mortgage servicing industry. By launching their own investments vehicles, servicing companies are seeking to capitalize on the rising demand for these products. Additionally, with traditional banks pulling back on their mortgage lending activities, servicers are hoping to fill this gap with their own investment vehicles.

Aside from providing economic opportunities to servicers, this trend may also help to improve consumer outcomes. By offering access to investments backed by residential mortgages, servicers may help to reduce the cost of borrowing money and open up new opportunities for people who wouldn't otherwise have access to such products.

This surge in investment vehicles launching in the mortgage servicing space serves as a reminder of the importance of fragmented services in this sector. While the banking industry is dominated by large institutions, the mortgage industry is still home to a large number of independent players who are all looking to capitalize on the current market conditions. As the industry continues to evolve, it will be interesting to see what new investment opportunities emerge.

The emergence of servicing companies forming their own investment vehicles is indicative of a larger trend of fragmentation in the mortgage industry. This fragmentation is largely motivated by the increased financialization of the sector, as these companies are looking to take advantage of the growing demand for such products. This trend could lead to improved consumer outcomes, as borrowers could gain access to residential mortgage investments at lower costs. Additionally, this could help to offset the pullback in mortgage lending activities by traditional banks, as servicers look to fill the gap. Ultimately, this fragmentation will create opportunities for a variety of players in the industry, and it will be interesting to see what new offerings emerge in the future.

This article was contributed on Jul 03, 2023