How Newrez, Bayview and Onity are managing their MSRs

• Key Insight: How large lenders are managing new risks in the mortgage servicing rights portfolios that play a key role in their business strategies.
• What’s at Stake: Mortgage companies’ ability to retain and build on customer relationships while maintaining strong balance sheets.
  Overview bullets generated by AI with editorial review.   

Executives from some top players in the mortgage servicing rights market agreed there are some growing challenges when it comes to the operational responsibility for managing MSRs, and each had some distinct thoughts on how these should be addressed.
While some industry leaders have stressed the importance of building market share, Newrez President Baron Silverstein told attendees at IMN’s Mortgage Servicing Rights conference that it’s not the route his company’s taking.

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“We don’t need to grow. We’ve been very clear about our strategy,” he said.

Rather, Silverstein described his company’s approach to the market as “disciplined.”

“There are attractive returns even in a market like this. The origination market is certainly challenged, but there’s still opportunities there. There are opportunities on the MSR side, and you just need to make sure that you can manage your balance sheet,” he said.

Silverstein said his company has been buying a mix of older loans from the pandemic or before and new originations, with the former accounting for around 60% of its portfolio and the latter for the remaining 40%.

While Newrez is taking a different approach to the market than some other large nonbank mortgage companies, Silverstein said he did agree with some other executives’ statements about needing to manage liquidity.

What servicers are doing about liquidity challenges

Mortgage companies have been growing increasingly concerned about liquidity risk from having to advance funds for delinquency borrowers in the large Ginnie Mae market, said Simon Aldrich, a senior executive vice president at Freedom Mortgage, a leading player in the space.

Michael Lau, managing director at Bayview Asset Management, said that’s made Ginnie servicing, which has a relatively high delinquency rate, “very specialized and intense particularly in the current environment.”

Bayview and Freedom, which are top players in the Ginnie Mae space, said the advancing obligations so far have been manageable.

Freedom has “beefed up its advance lines” and has “plenty of liquidity,” Aldrich said.

Silverstein said Newrez has been using models with additional analysis to manage current servicing risks.

“You have to actually go beyond the model. You need to think outside what is happening in a macro environment, and where these models are not thinking about risks on a go-forward basis,” he said.

Lau said he prefers working with third-party experts to handle the operational responsibility for servicing in this environment.

“We utilize subservicers,” he said. “We would much rather have other people who are really good at it and that are contractually on the hook if they make mistakes.”

Onity, which has been engaged in a multiyear effort to de-risk its balance sheet, is keeping a close eye on delinquency risk that can go up when rates rise by regularly monitoring and testing the strength of its portfolio and operations, said Chief Investment Officer Aaron Wade.

“We shock our delinquency ratios to make sure that our cost of service, our valuations, and our liquidity are appropriate,” Wade said. 

While the operational management of mortgage servicing rights is getting more complicated, Silverstein reaffirmed that it’s worth it.

“Holding onto the MSRs is a good thing, and staying attached to the customers is a good thing,” he said.