Banks retreat again from residential servicing

Chris Whalen delves into why bank servicing of residential mortgages have fallen in 2020 even as origination volume is set to increase by 40% year-over-year.

1. Nonbank lenders have been taking the lion’s share of the volume expansion, most notably in refinance activity, which is set to roughly double year-over-year.
2. A “handful of hyper-efficient lenders” have become quite quite good at recapturing the refinance activity, which stems the pressing leak in the servicing portfolio during these refi waves.

Observations...

1. Those institutions with leading recapture capabilities are increasingly able to articulate a platform-driven value proposition (see Rocket Mortgage)
2. The share of servicing done by nonbanks lender will likely continue to grow, may have long-term systemic implications since these shops are borrowing short term to hold long term without the permanent government support accorded to banks