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www.MIACAnalytics.com
Dan Tomas,
Managing Director, Asset Sales Group.
Market Values
- Flight to quality in Mortgage Market has not decreased MSR values significantly except for the Alt A segment, which is currently out of favor. Subprime values have held steady, as prepayments have slowed significantly from last year and demand is strong.
- First half of 2007 – MSR market has picked up for agency portfolios as values have increased with the slowdown of prepayment speeds
- The weaker credit product is experiencing a much faster deterioration than market participants have anticipated. MIAC believes that as delinquencies and foreclosure rise that the market values of both the subprime and ALT A sectors will drop in the near term
Supply
Most of the portfolio sales have been on distressed situations or clean Agency product. They has been a increase in the number of sales of small portfolios under $200 mm where sellers have been taking advantage of a slower prepayment speed environment and a up tick in values. However most of the MSR supply has been attributed to the following large distressed portfolio or company sales:
- Opteum – Approx. $9 Billion
- Fremont- Approx. $16 Billion
- New Century- Approx. $18 Billion
- Option One – Approx. $56 Billion
- Accredited – Approx. $10 Billion -pending
- American Home- Approx. $50 Billion- pending
- Ameriquest- Approx. $43 Billion
- C Bass /Litton- Approx. $48 Billion- pending
MSR Demand
In light of the decrease in origination volume MIAC anticipates that the demand for MSRs by the major servicers will increase over the next several quarters. New subprime servicers will need to replace servicing that either defaults or prepays (avg. life is approx. 2 ½ yrs.)
- Small portfolios (under $500 million) – demand is spotty with most of the buyers having limited budgets for acquisitions.
- Medium Portfolios ($500- $1.5B) – demand is decent but focused on mostly Agency product but there is a growing demand for Subprime portfolios.
- Large Portfolios (over $1.5B) demand is very good for clean Agency product and the subprime segment is improving. Alt A demand has been moving in the opposite direction.
Opportunities
- Portfolios from distressed companies looking to raise liquidity
- Medium Portfolios- not all the major buyers bid on every portfolio. MIAC believes that there is a 40% or better chance to acquire these portfolios in regular auctions as discount rates in the 10-12% range.
- ALT A, Jumbo and Arm Portfolios- these portfolios are out of favor and may become cheap enough to acquire at attractive yields north of 15%. Acquisitions should be very selective with the goal of keeping the percentages of deteriorating vintages and sectors at a minimum.
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