The supply-demand equation that sets servicing prices has been shifting a bit. The origination slowdown that hit last year has produced some upward pressure on servicing values, according to one servicing broker close to the action. Fewer new loans being created, coupled with a brief hiatus from more new RTC servicing coming onto the market, actually combined to help boost prices in this year's first quarter.
Much has been written about the RTC flooding the market with servicing thus creating an oversupply that's deflated prices. Well, that could finally be changing somewhat. But, like everything connected to the federal government, if something is being done well, don't cunt on it to last too long. So it is with the RTC's temporary respite from bringing new servicing from failed thrifts to the auction block. RTC was basically put on hold when its operating funds dried up. But now Congress has approved new cash, so more thrift closings are on the way. And, of course, that means more thrift servicing is also on its way.
The supply-demand improvement that actually boosted servicing prices across the board in the first quarter was pointed out by a panel on servicing valuation at the National Secondary Market Conference in Atlanta. David L. Solomon, executive vice president and manager of the Midwest region for Hamilton, Carter, Smith & Company, Inc., said that the value of all servicing rights are "up about 20 percent versus prices in December 1990." He said because prices for high-quality agency servicing have been bid up fairly significantly recently because of bulging demand buyers have begun to take renewed interest in GNMA servicing. He said as a result, high-quality GNMA servicing is now going for prices in the range of 170 to 185 basic points. He added that agency servicing from certain regions including the Southeast and Midwest is now typically going for five times the servicing fee. He added that high-quality, non-recourse agency servicing is "now trading almost at 1987 levels" or close to its historical highs because there is currently so much demand for this product.
Solomon said that one of the tougher regions to sell servicing from currently is the Northeast and "to some extent California, but California has been improving over the last quarter." The servicing broker said." I think you could sell Texas [servicing] all day long." But by contrast, he said, "Fannie Mae recourse servicing from the Northeast is probably the toughest...