Buzz at the Conferences? “Slowcession,” Not Recession. Focus On What’s Getting Done

Pete Pannes

By Pete Pannes, Chief Business Officer

It’s conference season again. In the past month, our industry has had four major conferences: the MBA Servicing Conference in Orlando, the Structured Finance Association (SFA) conference in Las Vegas, the ICE Experience also in Las Vegas and the MBA Mid-Winter conference in Colorado. Having attended three of them, here are my quick takeaways on the two most important from the perspective of our clients: MBA Servicing and SF Vegas.

Despite the dramatic decrease in loan volume, attendance at both conferences was still relatively strong and in the case of SF Vegas, even set a new record. While no one was euphoric, the atmosphere at all the conferences was positive, and the attendees were focused on what business there is and what needs to be done in the current environment. This was particularly true of SF Vegas, where attendees tend to exhibit a vintage Wall Street attitude towards markets: They go up, they go down but there is money to be made in every cycle, the only question is how much?

MBA Servicing
The night before the conference began, our parent company, Covius, hosted a dinner for approximately 30 clients, with Mark Zandi, the Chief Economist at Moody’s as the featured speaker. Mark suggested that a “slowcession” as opposed to a recession might be a better way of thinking about what’s ahead for the economy. He put the chances of a slowcession at 55% vs. 45% for recession.

Mark’s opinion appeared to be widely shared by the attendees at Servicing. No one seems to be expecting a full-blown recession; and if defaults do rise, most servicers we spoke to believed that they will mirror the pre-COVID levels of 2019, which were still historically low.

That said, there was a great deal of discussion at the conference about what the CFPB and FHFA are going to expect in terms of loss mitigation going forward. Just before the conference began, the CFPB put the servicing community on notice that it expects COVID-19 loss mitigation solutions, like forbearance, to be extended to all distressed borrowers, regardless of the reasons for their defaults.

Not surprisingly, servicers were very focused on getting their loss mitigation policies and processes in sync with the CFPB’s new direction. The bigger the servicer, the bigger the target was the prevailing wisdom. There was clearly renewed interest in servicing automation, particularly in the loss mitigation and default side of the business. Outsourcing either all or parts of loss mitigation to optimize resources was also a topic of discussion.

The other big topic of discussion in the meeting rooms and hallways was Well Fargo’s decision to exit servicing. Timing, and who is going to get what, seemed to come up at every meeting. If every servicer and subservicer gets what they are expecting, significantly more servicing will change hands than Well’s is selling.

SF Vegas
SF Vegas drew more than 8,700 attendees. For the most part, the clients we met with seemed particularly focused on things that needed to be accomplished in the near-term: confirming their relationships with warehouse lenders, renegotiating lines and solidifying relationships with key partners.

No one was lamenting the downturn in the sheer number of deals, instead they were talking about the kind of deals that are still coming to market: for example, RPL and NPL, HELOCs and MSR transfers, and even some reverse mortgage transactions.

One large investor was borderline giddy about an RPL deal that priced at over par, considering it would have priced in the high 80s just three months ago. There were also signs that HELOC securitization might be coming together after all. One large money center bank, for example, is planning to securitize $12 billion in HELOCs, perhaps as many as 90,000+ lines.

Meanwhile, some large mortgage banks, like Rocket, UWM and loanDepot, are originating these assets to securitize, as are specialty lenders, like Figure and Spring EQ. Large investors, like PennyMac, are also actively looking at this asset class. At least two subservicers are now subservicing both fixed and open-end home equity loans.

The consensus seemed to be that non-QM and jumbo deals would be few and far between as long as prime mortgage rates are flirting with 7%. Rates would have to go back to the high 5%, and stay there for a while, before non-QM pipelines refill.

Consolidation within the TPR community was also top of mind at the conference. News that at least one new entrant is significantly downsizing, if not getting out of residential reviews entirely and that another marquee name TPR had recently sold for $600,000, is prompting some observers to conclude that the TPR universe is dividing into two groups. On one side of the line are the two largest TPRs –Clayton and our major competitor—who have the financial strength to continue to invest in platforms and to weather this down cycle. On the other side of the page are smaller TPRs that are hanging on for their next deal.

This scenario is already playing out in the market. In January, the top two TPRs accounted for more than 75% of the total review market and remaining 10 or 12 players shared the rest.

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