It seems the torch is being passing in the U.S. mortgage servicing industry as portfolios among smaller companies quickly increase, according to Fitch's latest quarterly U.S. RMBS Servicer Handbook and US RMBS Servicer Roundtable Takeaways.
Fitch says that portfolios among special servicers with loan counts less than 400,000 are increasing quicker than the servicing industry as a whole with an average year-over-year growth of almost 20 percent. This is compared to the weighted average portfolio growth for all Fitch-rated servicers (approximately 2 percent).
“While special servicers continue to maintain robust capabilities in handling distressed loans, many have expanded into performing servicing in order offset portfolio runoff. Primary serviced loans increased by 52 percent on average across their portfolios,” adds the report. “This trend is in line with takeaways from Fitch's recent U.S. RMBS Servicer Roundtable event, in which many servicing executives noted that non-bank special servicers could seek out new origination volume to offset declining delinquent loan volume.”
Further, Fitch reports that according to industry experts during a recent U.S. RMBS servicer roundtable responsibility for servicing loans will rest more with non-banks, with the overwhelming consensus of 89 percent of panelists agreeing that nonbank servicers will continue to take market share from banks in 2017.
“Whereas MSR sales and subservicing had in the past driven servicing growth among non-banks, future activity will be driven by new loan origination activity by competitive non-banks who also service loans,” says Managing Director Roelof Slump. “Servicing sales from banks who want to reduce the associated regulatory impact on capital will also drive growth.”
Increased regulation has become a significant operational burden across the industry and has driven servicing costs higher, according to Fitch, but the report adds that most roundtable attendees believe that regulation has led to improved servicing quality.
“Regulation has made servicing transfers cleaner due to better data quality on in-flight loan modifications and loss mitigation efforts already undertaken by the prior servicer,” says Slump.