If interest rates remain high, some mortgage bankers may decide to sell off mortgage servicing rights
Mortgage servicing rights (MSRs) are moving to the forefront as interest rates remain elevated. One industry expert stresses the importance of recapturing the loan if rates drop, and warns that some mortgage bankers may disappear if there isn’t rate relief soon.
Mark Garland is the managing director of MSR pricing and analytics with SitusAMC. He has been tracking MSRs since they began in the early 1980s. He has watched the majority of assets shift from being held by traditional banks to some of the biggest names in the mortgage lending industry.
“The biggest guys in the country hold billions of dollars in this, and they're really kind of classic household names in the mortgage industry,” Garland told Mortgage Professional America. “So you've got guys like Stan Middleman at Freedom, you've got Dan Gilbert at Rocket, and Mat Ishbia at UWM with some of the largest portfolios.
“Historically, they’ve been held by banks. If we went back 10, 15, or 20 years ago, the top banks would have been Bank of America, Citi, Chase, and Wells Fargo. They’re still very big in the space, but now the independent mortgage bankers (IMBs) have come on and held this asset. They’re probably 60% of the top 20 or 30 shops in the country.”
One of the significant advantages of the modern large mortgage banker is the ability to act quickly when they identify an opportunity for a consumer to either refinance a mortgage or when they’re ready to buy a new home.
“A big bank would sort of be the steady Eddie, kind of plodding along,” Garland said. “The way independent mortgage bankers got in was by being really nimble. One of the things they’ve done is recapture. Guys like Rocket and UWM will tell you they want a customer for life. So when rates drop, they want to get out in front of that customer and offer them the opportunity to refinance and lower their payment.”
Trigger leads signal customers are ready to act
One of the hot topics in the mortgage industry is the use of trigger leads. When a customer pulls credit for financing, other lenders can be notified that they are shopping for a loan.
There is currently a bill in Congress that would ban trigger leads. In the meantime, lenders are using them to try to recapture loans.
Brendan McKay discusses the renewed push for the trigger leads bill, stressing the importance of broker involvement in contacting Congress. With growing support, McKay believes this could be the year for progress.https://t.co/qr85IvhboI
— Mortgage Professional America Magazine (@MPAMagazineUS) April 23, 2025
“Even the big banks, when rates drop, don’t have a lot of time to get out in front of those customers before these independent mortgage banks are getting the same trigger lead and getting in front of your customers,” Garland said. “I think this has really led to their growth, and has really created an environment that cushions owning this asset (MSRs) when rates fall.”
Garland notes that the value of an MSR typically increases as rates rise, as customers are less likely to pay off the loan through refinance or sale. When rates fall, MSR owners know they’re likely going to lose that asset to a new loan. Then, they hope to recapture the loan.
“I would say the biggest IMBs in the country are rooting for rates to go down, which seems completely contrary,” he said. “When you hold the huge servicing portfolio, I think they’re waiting for rates to go down, because not only will they recapture the new loan, but then they’ll sell that loan into the servicing market, the secondary market, and make a gain on the sale.”
Uncertainty leading to higher rates, stagnant market
The last two months have seen plenty of market turmoil. This trend is likely to persist in the short term, with all eyes turning to Fannie Mae and Freddie Mac. President Trump posted on Wednesday that he is seriously considering taking the two entities public and ending conservatorship.
Garland said that move leaves the mortgage industry with more questions than answers.
“There was a short window in 2009 when we weren’t sure what was going to happen with Fannie and Freddie, and the US government came in and took them under government control,” Garland said. “I think the uncertainty from; will they be public? Will they be private? Will the government do an explicit or implicit guarantee? Will the government pay its own debt? It is shaking it down to the roots of our foundation.”
He notes one positive for MSRs in all the turmoil is that home mortgages are likely going to be paid even when consumers struggle with other household bills.
“All of the hunkering down by consumers helped the mortgage servicing value,” he said. “It’s probably one of the few assets that could be arguably recession-proof. People might fall behind on their credit card bills or their auto payments, but it takes a lot for somebody to default on their home.”
While hesitant home sellers have caused the market to stall, as inventory numbers are still relatively low in many markets, they are likely helping companies that hold onto the servicing rights for those loans.
“The nice thing about owning these MSRs from 2020 and 2021, the 3% product, it almost works like a bond,” Garland said. “They’re just kicking off cash. That product is probably keeping the lights on for a lot of mortgage bankers.”
Garland believes that smaller mortgage bankers will need to see lower rates soon. Rate decreases that were promised for late 2024 have still not occurred, and he believes the market may experience further constriction if conditions don’t improve.
“If we go through 2025 and 2026, we’re looking at a four-year drought of high rates,” he said. “I think this year we started to see it, and I think we’ll see it more this year into next year. I think people are just going to say, ‘No mas.’ They can only take the pain for so long. If we don’t see some relief down the road, I wouldn’t be surprised to see 10% or 20% of mortgage bankers hang it up and sell what they have.”
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