Fitch: BofA's MSR Sales Indicate New Trend Among Big Banks
By: Krista Franks Brock
Following Bank of America’s announcement of a $306 billion sale of mortgage servicing rights (MSRs) Monday and amid talk of more MSR sales from the bank Thursday, Fitch suggests BofA may not be alone in its strategy of unloading MSRs.
“We believe that other banks with large MSR assets may also begin to complete sales or pursue other strategies to limit their size on bank balance sheets,” Fitch said this week.
Fitch specifically points to Wells Fargo and JP Morgan as banks likely to fall in line with BofA’s approach.
Basel III brings new rules for MSRs. For example, MSRs cannot contribute more than 10 percent to common equity.
“This is particularly relevant now, since the value of MSRs would increase in a rising interest rate environment,” Fitch stated.
Thus, Fitch suggests BofA’s decision to sell MSRs was partly driven by new rules in capital markets.
As for other banks hoping to follow in BofA’s footsteps, Fitch says the BofA deal “indicates that a market exists for these assets,” and furthermore, that market appears “relatively attractive now.”
BofA’s success in securing a deal – even despite having “one of the more challenging servicing books compared with other large institutions,” according to Fitch – implies there are servicing shops eager to purchase MSRs.
The only hindrance could be capacity constraints, according to Fitch.
Moving forward, Fitch foresees BofA continuing to originate loans through branch networks and wealth management units, which will cross-sell various products to the same customers.
“We believe this should lead to more stable earnings for BAC because it removes some of the earnings volatility ingerent in running a national mortgage lending platform,” Fitch said.
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