M&A Market Heats Up.(Mergers and Aquisitions)

The predictions keep rolling in: within a few years, there will only be five mortgage servicers of consequence. While that is probably a dramatic exaggeration, there is a growing consensus that consolidation will continue. During the refinancing binge of recent years, the opposite has been true, a fractious loan origination market and heavy loan turnover actually cost the top servicers some market share as a group. But the long-term trend seems clear: a few big players will likely dominate the mortgage industry.

Already, top originators have been increasing their share of the market, and with lending volume slowing down, that could portend a return to consolidation on the loan servicing side of the business as well. Some small players, burned by portfolio churning and impairment writedowns to their mortgage servicing rights, will consider exiting the business. And with rates on the rise, MSR values are going to start creeping up as well. That will give some fence sitters an impetus to dump their mortgage servicing portfolios into the market.

And mega-servicers, concerned about keeping their shops running at full throttle to maintain economies of scale, will want to add volume to their portfolios. With the origination market declining, some will turn to the ...