NEW YORK (
) -- Mortgage servicers
(OCN - Get Report)
Walter Investment Management
(WAC - Get Report)
Nationstar Mortgage Holdings
(NSM - Get Report)
all saw their shares lifted Friday after
(WFC - Get Report)
both indicated they plan to sell mortgage servicing rights (MSRs).
While the mortgage servicers' shares were mixed Monday morning, the statements from JPMorgan and Wells are good news longer term for the industry. Nonbank mortgage servicers has grown dramatically in recent years, but have been vulnerable to fears over dwindling supply.
Ocwen shares were up 1.06% to $45.81 late Monday morning, while shares of Nationstar were down by 1.4% to $41.79 and Walter shares were down by 0.84% to $35.71.
Mortgage servicers are essentially debt collectors. While the largest mortgage servicers continue to be JPMorgan Chase, Wells,
Bank of America
, their share of the market has declined substantially over the past 12 months as non-banks have gobbled up MSRs and banks have actively reduced their presence in the market. Nonbank servicers own $1.4 trillion worth of MSRs, an increase of 69% over the past three months, according to
Inside Mortgage Finance
. Bank of America has been by far the most active seller of MSRs, though executives there indicated they are largely finished selling off those assets.
While sales by Wells and JPMorgan were largely expected by close followers of the mortgage servicing industry, the news may come as a surprise to some newer adherents. Dramatic rises in the shares of specialty mortgage servicers have drawn many new investors to the sector.
Nationstar, Walter and Ocwen "are primarily in the business of originating and servicing mortgages to borrowers with impaired credit profiles of some sort. Their mortgage volumes and margins will be defined primarily by HARP refinancings and their ability to develop new channels. It goes without saying the three succeed when banks and other originators look to offloading servicing," wrote Henry Coffey of Sterne Agee in a July 15 research note.
Planned capital rules make it more costly for banks to own MSRs. Nonetheless, Wells Fargo CFO Tim Sloan said during the bank's second-quarter earnings call Friday that "prudent risk management" is the main reason for ongoing MSR sales. "The primary driver for doing that is not because we feel like there is pressure as it relates to capital," he said.
Written by Dan Freed in New York