With banks dumping their MSR books post-GFC, seems like HFs and PE firms came in to pick-up these assets at a discount then. Is this asset class still appealing or is it a snoozer? And why?
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Achilles., bummer your thread hasn't had a response yet. Maybe one of these threads could point you in the right direction:
More suggestions...
I hope those threads give you a bit more insight.
What PE firms are picking up MSR books?
Lone Star
https://www.nytimes.com/2015/09/29/business/dealbook/as-banks-retreat-private-equity-rushes-to-buy-troubled-home-mortgages.html
Lone star bought CIT's mortgage business in 2008, which included a servicing business and MSRs. They later merged the business with Caliber and then sold it in 2021. It's a bit misleading to say that PE firms are purchasing MSR books.
MSR books are currently valued at significant premiums to historical values given refi volume and outlook are at all time lows, but there aren't exactly any standalone servicers and mortgage originators are trading at all time lows, so you can do the math...
"With banks dumping their MSR books post-GFC, seems like HFs and PE firms came in to pick-up these assets at a discount then."
^ What I said is absolutely factually true...
Nah, you're confusing GPs with portfolio companies.
The PE firms didn't purchase MSRs. They purchased a portfolio company that manufactured MSRs.
It's like saying a hedge fund stocked up on toilet paper ahead of the pandemic because you saw that a hedge fund bought Kimberly-Clark stock.
Go home, freshman...
https://www.fortress.com/shareholders/news/2013-07-29-fortress-announce…
It's a very niche asset class with a lot of embedded leverage/interest rate risk and often trades somewhat idiosyncratically relative to "fundamentals" given the inherent relationship with mortgage originators (it's a natural hedge to originators' primary origination business...ability to recapture borrower in a refi wave, source of ongoing revenue in a refi bust, so they're generally going to be the best bid).
If you're just a regular fund buying excess IO stripped off the main MSR asset (i.e. you don't have an actual servicer to put the whole MSR into) it's just a levered short duration/short gamma trade.
To me it feels like there are simpler ways to get yield right now...particularly given that valuations are pretty high at the moment because of rates, but given the complexity of the asset it wouldn't surprise me if there were some alpha to be had if you take the time to understand it.
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