Nov. 2015-Opportunity Knocks

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44 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING the latest major Banks third-Party mortgage Servicing Portfolios Note: The total servicing portfolio for each of these banks is larger than the figures seen here, as each of them also services the mortgages they originate and retain. (Courtesy of TREFIS) $1,900 $1,710 $1,520 $1,330 $1,140 $950 $760 $570 $380 $190 (in billions) Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 major Banks' third-party mortgage Servicing Portfolios continue to decline In Q2, JpMorgan, Bank of America, Citigroup, Wells Fargo, and U.S. Bancorp all reported decreases in their third-party mortgage servicing portfolios. m ajor banks across the United States are being cautious about adding mortgages they did not originate to their balance sheets, and in turn, have recorded drastic declines in their third-party mortgage servicing portfolios since early 2009, shortly after the economic downturn in 2008. JPMorgan, Bank of America, Citigroup, Wells Fargo, and U.S. Bancorp all experienced yet another decrease in their third-party mortgage servicing portfolios in the second quarter of 2015, according to an article on TREFIS. "The mortgage serving busi- ness fell out of favor with most banks in the aftermath of the economic downturn of 2008, and the three largest banks have reported a notable de- cline in the size of their mort- gage servicing portfolios since early 2009," the TREFIS team said. "Although Wells Fargo and U.S. Bancorp capitalized on the reduced competition and the sharp increase in mortgage activ- ity over 2011-2012 to bulk up their mortgage servicing operations, even these banks have reported a reduction in their third-party mortgage servicing portfolio over recent quarters." TREFIS also noted that the five aforementioned banks "still retain a strong grip on the industry–taking up five of the top six positions in the mortgage servicing industry." Although it is a rare that banks buy servicing right for portfolios of student loans, auto loans, or commercial loans from originators, it is a very common practice for banks to purchase home loans, the report explained. When this occurs, banks assume all risk for the portfolio and ex- pect payments from the borrow- ers within that portfolio. Wells Fargo and U.S. Bancorp are known to steer toward mort- gage lending and experienced the smallest reduction in their third-party mortgage servic- ing portfolios in recent years. However, banks that are cutting their mortgage business display huge declines in their portfolio size, the report stated. "It should be noted that the decline over recent quarters is not just because of a more risk-averse stand taken by banks towards third-party mortgages," TREFIS explained. "Although most of these banks have continued to add to their mortgage servicing portfolios, these acquisitions have been unable to match the excep- tionally high repayment rates seen in the last few quarters."

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