Morning Report: Servicing valuations look elevated

Vital Statistics:

S&P futures4,16332.50
Oil (WTI)77.61-0.86
10 year government bond yield 3.59%
30 year fixed rate mortgage 6.30%

Stocks are up this morning on positive earnings. Bonds and MBS are up.

Initial Jobless Claims rose to 196,000 last week. This comports with the jobs report last Friday.

New York City is the most “rent-burdened” MSA out there, with people paying 69% of their income in rent. In order to NOT be considered rent-burdened, you have to make $177k. Other MSAs include Miami, Fort Lauderdale and Los Angeles.

Rithm Capital (aka New Rez) reported earnings yesterday. Mortgage origination volume fell 43% QOQ and 80% YOY to $7.9 billion. The company is guiding for Q123 volume to fall further to $5 – 7 billion. On the plus side, gain on sale margins rose 10 bp QOQ and 16 bp YOY to 1.81%. Funds available for distribution came in at $0.33, so the $0.25 dividend is well-covered at least for now.

The servicing portfolio has been the engine of growth, but it looks like they are valuing their portfolio pretty much fully at 4.9x servicing revenue.

Rithm is also building other businesses including single family rentals and its reno / construction / bridge loan businesses.

PennyMac Mortgage Investment Trust got beat up in the fourth quarter, as origination income fell. Note where they are valuing their servicing portfolio:

6.1 times is pretty hefty, and with their origination volume at 50% government, I wonder how much is FHA. Government servicing is not trading at 6 times. The MSR market is pretty well-supplied with originators selling their servicing portfolios to raise cash. I have to imagine the actual secondary market is well below that regardless of size.

5 Responses

  1. Brent, you may find this of interest:

    “How Florida Beat New York

    People are leaving superstar blue cities and moving to red states.
    By Jerusalem Demsas

    Although many commentators attribute the shift in migration preferences to taxes—one recent Bloomberg article frames the NAR data in this manner—what’s largely driving the trend is housing costs. In fact, Census Bureau survey data consistently show that people move primarily for housing-related reasons, followed by family- and job-related reasons.

    The Federal Reserve Bank of Atlanta tracks home-ownership affordability by metro area with an index that seeks to measure “the ability of a median-income household to absorb the estimated annual costs associated with owning a median-priced home.” The top 10 metro areas for unaffordability are a sort of who’s who of Democratic cities: Los Angeles–Long Beach–Anaheim tops the list, with New York–Newark–Jersey City rolling into the sixth spot as the first non-California metro. Miami–Fort Lauderdale–West Palm Beach is No. 12. That’s not cheap, but Florida’s other major metros, including Orlando-Kissimmee-Sanford and Tampa–St. Petersburg–Clearwater, are ranked far better on the Atlanta Fed’s index.”


  2. I’m going to have to check this out:


  3. Foreign countries are getting into the “send them to DC” act:

    “Nicaragua frees more than 200 political prisoners, sends them to Washington”


  4. One writer at the Atlantic gets it:

    “A Qualified Defense of Christopher Rufo

    New College is not a weak target, and if Rufo wants to challenge an entrenched bureaucracy, then he will have a fair fight.

    By Graeme Wood”


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