Wells Fargo & Co. Chief Financial Officer Mike Santomassimo, during the bank’s first-quarter earnings call on Friday, confirmed the MSR sale but did not offer any specific details about the deal.
“During the first quarter, we successfully marketed mortgage servicing rights for approximately $50 billion of loans serviced for others that we expect to close later this year,” Santomassimo said. “We will continue to look for additional opportunities to simplify and reduce the size of our servicing business.”
Market speculation has been rife since January of this year that Wells Fargo was preparing to sell some sizable MSR packages, HousingWire reported previously. That rumor was given more credence when industry publication Inside Mortgage Finance reported in early February of this year that Wells Fargo was contemplating two bulk MSR offerings — one at $20 billion and the other at $40 billion. The report was based on unnamed sources and indicated the sales were being handled “inhouse.”
Wells Fargo’s has previously announced plans to reduce its MSR portfolio, valued on its books at $9.31 billion as of the end of 2022, U.S. Security and Exchange Commission (SEC) filings show. As of the end of the first quarter of 2023, the bank’s MSR portfolio was valued at $8.81 billion — down by some $500 million.
Wells Fargo’s total portfolio of loans serviced as of the end of the first quarter of 2023 totaled $666.8 billion based on the unpaid principal balance (UPB), down from $679.2 billion as of yearend 2022. That tally excludes loans subserviced for others — which, according to Santomassimo, is the type of MSRs Wells is selling in the $50 billion deal expected to close later this year.
The type or mix of MSRs sold — Fannie Mae, Freddie Mac or Ginnie Mae serviced loans — will determine the actual pricing for the deal, along with the volume of loans involved, the servicing-fee strip and the quality of the collateral, among other factors. As such, it’s hard to determine from the SEC filings the specific details of the $50 billion MSR portfolio marketed by Wells Fargo.
The price paid for an MSR package is expressed as a multiple of the average servicing fee of the portfolio. A 25 basis-point servicing strip at a 5 multiple, for example, would be 1.25%, which is then multiplied by the total outstanding principal balance of the servicing portfolio being sold to determine the sales price.
Nick Smith, the founder and CEO of Rice Park Capital Management, which is very active in the MSR market, said MSR pools involving legacy loans from 2020 and 2021 — which was the era of 30-year fixed mortgages at 3% or less — are now selling for multiples of 4.75 to 5.25. The value is bolstered by the fact that those loans have very low prepayment (refinancing) speeds, which increases the value of the MSRs.
“It’s definitely the case that the bulk of the market is legacy loans,” Smith said. “We have $8 trillion [in mortgages] originated between 2020 and 2021, and in 2022, we had like roughly $2 trillion.
“So, we had $8 trillion out of $10 trillion that is this low-coupon stuff, and 2023 is yet again, sort of higher rates, lower volumes. That [2020 and 2021 vintage] is the majority of what’s trading just because that’s the majority of what exists in the world at this point.”
Tom Piercy, managing director of Incenter Mortgage Advisors, said typically those conventional Fannie and Freddie legacy MSR portfolios are selling a full multiple above Ginnie Mae MSRs. Ginnie Mae guarantees mortgage-backed securities issued against loans originated through government agencies, such as the Federal Housing Administration (FHA).
“In the Ginnie space, we used to see a 4 multiple, and that market has now moved to a 3.5- to 3.8-type multiple,” Piercy said. “… When we have the cycle where things begin to slow, and when I say slow, meaning the economy as a whole, the FHA borrowers struggle.
“We’re seeing a lot of Ginnie Mae trades right now… with pools that are 18 to 24 months old that are running in a 10% to 15% delinquent category already [30 days past due or more].”
As to the mix of MSRs being sold in Wells Fargo’s just-confirmed $50 billion offering, Tom Goyda, a Wells Fargo spokesperson, said the bank has “not commented specifically on the details of any transactions.”