In the current period of near-record low interest rates on home loans, smaller mortgage servicers are better equipped to maintain growth than their larger counterparts.
Many financial institutions and non-bank companies alike previously reported that their
mortgage servicing portfolios were smaller during the first quarter of this year.
The decline in servicing portfolios presages
a tougher period ahead as residential loan borrowers are presented with more opportunities to refinance their mortgages.
That is according to Fitch Ratings, which outlined the findings in its residential mortgage-backed securities servicer handbook.
“Generally large servicers had a challenging quarter, though some entities were able to grow their portfolios through increased agency activities, subservicing and third-party relationships,” the New York-based ratings agency said.
If JPMorgan Chase & Co. is any indication, servicing portfolios are continuing to fall. Chase, the first major mortgage lender to report second-quarter earnings so far, said Thursday that its massive servicing portfolio declined to $880 billion as of mid-2016 from $899 billion as of March 31.
But Fitch noted that some servicers — including
Roundpoint Servicing Corp., Cenlar FSB, Specialized Loan Servicing and Shellpoint — experienced growth in the first quarter.
The United Kingdom’s vote to depart from the European Union has
added downward pressure on U.S. mortgage rates — leaving servicers in a difficult interest rate environment for the remainder of this year.
Freddie Mac reported Thursday that 30-year fixed rates averaged 3.42 percent in the week ended July 14 — just 11 basis points above the all-time low of 3.31 percent reached in November 2012.
Such an environment is having an impact on servicing portfolios.
“Maintaining portfolio size can be an important factor as mortgage servicing is a scale business,” Fitch Managing Director Roelof Slump said in an announcement. “Servicers that do not have associated origination platforms and service mostly performing loans are most exposed to portfolio runoff.”
Slump added that by being involved in new areas, smaller servicers can quickly see growth and financial benefit. But “it takes more to move the needle among the largest servicers.”
