Lenders are facing a tough market for originations, helping to prompt sales of servicing. The supply of MSR is coming both from older vintages with interest rates well below current rates and new production in which a lender might not want to hedge the MSR.
Some MSR buyers are offering exceptionally strong bids for servicing, counting on being able to recapture borrowers when interest rates drop. The high bids are creating some complications for sellers and MSR valuations.
MSR bids are currently largely rational, though a few packages sold in recent weeks at unexpected prices, according to Brian Simon, a managing director at Bungalow Funding.