By Mike Carnes, Managing Director, MSR Valuations Group
Ginnie Mae Performance
From our vantage point, higher delinquencies continue to plague newer vintage Ginnie Mae MSRs. From November ’24 to January ’25 MIAC respectively tracked $617, $730, and $563 million in early buyouts for a 3-month total of $1.91 billion. In addition, there was another $1.7 billion in modifications in November, $2.05 billion in December, and $2.85 billion in January.
Source: MIAC Analytics™
Despite the $8.51 billion in collective removals the volume of DQ2% (i.e., 60 days past due and higher) of Ginnie Mae MSRs still increased from $112 billion in November ’24 to $116.1 billion as of the end of January ’25. So, to rule out the seasonality impact and try to put this into perspective, the 60-day and greater Ginnie Mae delinquency balance was below $72 billion compared to the same time last year. Higher debt-to-income ratios prompted by higher home prices, higher interest rates, higher taxes, and insurance, and in our opinion the “occasional” relaxed overlay, means that too many newer vintage government loans are becoming delinquent for buyouts and modifications to significantly slow the accumulation of delinquent loans.
Out of a known 295 firms that service one or more Ginnie Mae MSRs, 72 firms, including 26 with over $1B in MSR, have a DQ3% (i.e., 90 days past due and higher) >=4.5% and 90 servicers, including 35 with over $1B in MSR, have a total delinquency percentage >= 10%. As if that is not concerning enough, there are 21 servicers, including some with $1 billion or more in GNMA servicing that have delinquencies of 16% or greater with a weighted average delinquency rate (among the top 21 delinquent servicers) of 19.26%.
Often, numerous factors including geography can have a dramatic influence on delinquencies. Consider for one moment those states that experienced the most dramatic increase in the cost of insurance. On the surface the higher average escrow balances look great but behaviorally the resulting impact on debt-to-income-ratios when borrowers start paying more in taxes & insurance than they are paying in principal & interest can influence borrower behavior – sometimes in the form of involuntary prepayments and sometimes voluntary prepayments.
Higher LTVs and higher DTIs have been demonstrated to cause higher default probabilities. The MIAC CORE™ involuntary/voluntary behavioral model captures this phenomenon with precision. The increased credit risk has negatively impacted MSR values. Many of the regulatory entities are likely monitoring the delinquency status for both potential over-valuation of MSRs and liquidity concerns of nonbank MSR holders.
We will continue to explore what we believe are the underlying factors that contribute to this distinct increase in GNMA delinquencies. But based on our research so far, this increase in delinquencies cannot be “fully” explained by observable factors like DTI, FICO, and LTV. At MIAC we believe part of the problem is foreclosure prevention. As one of my colleagues so eloquently descried the situation, “We’re not allowing the badness to die.” Loans get bought out of their pools, modified, and redelivered only to have many of the modified borrowers re-default. Until the rinse and repeat cycle ends, it is possible that Ginnie Mae delinquencies could continue to worsen over time.
Bulk Pricing and Transfer Update
Despite a slow start to the year, MSR transaction levels remain at historic highs, so anyone feeling as though they missed the prime opportunity to sell MSRs last year are once again contemplating a sale. The UST 10-year closed out the month of January at 4.58%. This compares to 3.99% from one year prior. Despite prevailing market rates, recapture, even for smaller offerings, is still playing a significant role in MSR pricing. Like always, note rate, geography, average balance, borrow credit, pay history, and average escrow balance can determine the level at which a portfolio trades, or even if a portfolio trades but considering the strong demand and low supply, minus some outliers, most Agency MSR bulk transactions are executing in the 5.0 to 5.5 multiple range. In isolated cases, large Agency trades of more than $10B have executed at more than 6x multiples.
For government MSRs execution prices can exhibit significantly wider ranges with some deals garnering bids in the mid 4x range while a lesser performing portfolio might trade lower.
Although there has been some regression to the mean in terms of bulk MSR transfers vs. the totals recognized in ’21 and ’22, in a show of continued market demand, 4th Quarter ’24 bulk MSR transfers remain extraordinarily strong.
Source: MIAC Analytics™
Fair Market Value Update
In a rare show of uniformity, from end of month December ’24 to end of Month January ‘25, MIAC’s primary mortgage rates and economic earnings rates remained virtually flat.
Source: MIAC Analytics™
Source: MIAC Analytics™
As the month-over-month movement in MIAC’s daily GSA pricing reflects and depending on one’s unique portfolio characteristics, the results from end-of-month December to end-of-month January were values that remained flat to very slightly higher for most servicers. Generic Servicing Assets™ (GSAs) are MIAC’s daily pricing of representative benchmark mortgage servicing rights. The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the London Interbank Offered Rate (LIBOR).
Source: MIAC Analytics™
Reflected another way, MIAC’s Retrospective Analysis evaluates the performance of your MSR and/or hedge positions over a specified period (e.g., daily, weekly, or monthly). In reference to the month over month GSA Retrospective Analysis (below), changes can be attributed to the following factors:
- Parallel Shift (SOFR10Y): Measure the changes to the key rate – Run the analysis as of Day 0, using SOFR10Y from Day 1 to calculate the market value
- Non-Parallel Shift (SOFR Swap + Treasury Rate excluding SOFR10Y): Measure the Flatness/Steepness of yield curve – Run the analysis as of Day 0, applying all rates except SOFR10Y from Day 1 to calculate the market value
- Primary-Secondary Spread (PS Spread): Measure the mortgage rate impact – Run the analysis as of Day 0, using PS Spread from Day 1 to calculate the market value
- Primary-Secondary Spread (SS Spread): Measure the mortgage rate impact – Run the analysis as of Day 0, using SS Spread from Day 1 to calculate the market value
- Volatility – Run the analysis as of Day 0, applying the Volatility Surface from Day 1 to calculate the market value
- Time – Run the analysis as of Day 1, keeping all other variables the same as of Day 0, calculate the market value
Source: MIAC Analytics™
Per this analysis, the projected parallel which is the change in the SOFR10Y increased 1.47 bps which led to slightly lower prepayments and by default a slightly higher month over month change in value. Similarly, the non-parallel shift resulting in a slight steepening of the yield curve also resulting in an incrementally higher market value.
Depending on one’s unique portfolio characteristics, again, the result from end-of-month December to end of month January were values that remained flat to slightly higher for most servicers.
About MIAC
Before contemplating any MSR valuation or brokerage exercise, consider the following:
- In business since 1989, MIAC has been providing asset valuation services for 36 years
- MIAC’s team of MSR valuation team is led by seasoned industry professionals with over 50 years of combined MSR valuation and brokerage experience
- MIAC’s MSR valuation team is made up of 11 professionals with the shortest tenured individual at nearly 8 years
- Not including other asset types, in 2024 MIAC valued residential MSRs totaling $48.95T in unpaid principal balance for over 200 institutions
- In 2024, MIAC valued commercial mortgage MSRs totaling $1.7T for approximately 40 institutions
- Since 2021 has brokered or served as a buyside advisor for nearly $600 B in residential and commercial MSRs
Author
Mike Carnes, Managing Director, MSR Valuations Group
Mike.Carnes@miacanalytics.com
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