While residential mortgage lenders are facing tough headwinds driven by rising interest rates and low housing volume, the current market presents opportunities for savvy investors looking at mortgage servicing rights (“MSRs”). The current mortgage market is supported by non-bank mortgage originators and servicers who lack the same access to capital and liquidity as traditional banks. To continue growing, non-bank entities have had to be creative with respect to capital sources.
Non-bank owners of MSRs are seeking asset-specific alternative private capital vehicles to fund MSR portfolios. However, unlike whole mortgage loans, MSRs cannot be easily created and sold to investors. Fortunately, through creative thinking and structuring, investors are able to use non-bank, non-servicer, alternative capital sources to participate in the economics of MSRs. This article provides an overview of the phases and areas of consideration related to private capital vehicles that offer investment opportunities in MSRs.