For a long time, banks have been the primary holders of MSRs, but this new rule could open up the market to many more investors. This will make it easier for alternative lenders to enter the MSR market, creating greater liquidity. However, the question remains: who will buy the MSRs in this new market?
The most likely candidates are the non-bank entities that Ginnie Mae is hoping to attract. These entities can use a variety of methods to acquire MSRs, including outright purchases on the open market and purchasing MSRs through existing loan servicing agreements with other banks or lenders. These non-banks could also provide services to existing banks that are interested in selling their own MSRs. Additionally, certain types of special purpose vehicles (SPVs) could be created to facilitate the purchase and sale of MSRs, allowing third-party investors to enter the market without the need for an actual loan servicing agreement.
In addition to these non-banks, there is another group of potential MSR buyers: institutional investors. Institutional investors are already active in the mortgage market, with many of them investing in real estate-related assets such as mortgage-backed securities (MBS). It stands to reason that these same investors would be interested in investing in MSRs, since they offer similar risk-return characteristics as MBS. Institutional investors may purchase MSRs outright on the open market or through loan servicing agreements with other banks and lenders, just as non-banks do.
Finally, there is one other potential source of MSR buyers: hedge funds. Hedge funds have recently become active in the mortgage market, typically purchasing distressed mortgages from servicers. It is possible that some of these hedge funds could take advantage of the increased liquidity in the MSR market created by Ginnie Mae’s new rule and begin buying MSRs as well.
In conclusion, the MSR market will likely become more competitive and liquid following Ginnie Mae’s rule change, potentially attracting more buyers. The primary buyers of MSRs are likely to be non-banks and institutional investors, but hedge funds may also join in as well. While the exact impact of the rule change remains to be seen, it is likely that the MSR market will become more diverse and dynamic, leading to greater liquidity and opportunities for all types of investors.
This article was contributed on Oct 17, 2023