MSR strategy in focus: Insights on portfolio optimization and market evolution

Bill Greenberg shares key insights ahead of presenting at IMN's Mortgage Servicing Rights conference, November 13-14 in New York City. Join Bill there where 450+ industry executives will be turning MSR market volatility into portfolio vitality - learn more!

1. How are you repositioning your MSR portfolio strategy to optimize value across different interest rate scenarios, and what hedging or composition changes are you implementing?

We are active hedgers in all rate environments and our hedging strategy is generally the same throughout time. We hedge “100%” of the cashflows and all along the yield curve. That means that even when short term interest rates rise, we have hedged the curve and so we do not get a windfall when float income rises. Conversely, when the fed cuts and short rates fall, we have hedged that too, so our book value shouldn’t decline either. The one new thing for us is the development of our Direct-to-Consumer origination channel that we have stood up from scratch. Now, only 3% of our portfolio is eligible for refinance from a rate and term perspective, and even if mortgage rates fall to 5% then only 8% of our portfolio would be in the money. However, what we have seen in our DTC efforts is encouraging from a recapture perspective and, while still small, is higher than what we modeled when we purchased RoundPoint. This has given us confidence to be more competitive in purchasing at-the-money flow and bulk MSR. While the DTC effort is not meant to hedge the full interest rate sensitivity of our entire MSR asset, we do think we will be better protected in a significant refi wave should prepay speeds be faster than expected.

2. What operational and technology investments are you prioritizing to balance regulatory compliance with competitive servicing costs and customer experience?

In terms of regulatory compliance, I always like to say we manage our company to what we think is right rather than who the current occupant of the Director’s chair at the CFPB of FHFA is. Furthermore, as we all know, state regulators are still actively working. So all of our investments in technology and customer service and experience are made with those factors in mind. AI tools have gotten a lot of attention of late, and for good reason. We are particularly focused on those technologies that can help us streamline our processes and improve customer experience, BUT (so far) always ones that still have human overlays and oversight. So when we have AI perform call summarization, we always have a human reading what the AI has written to check to make sure it is accurate and compliant. And that philosophy permeates the organization and how we are approaching these issues.

3. How do you see the MSR competitive landscape evolving, and what capabilities will be most critical for long-term success in mortgage servicing?

Mortgage servicing is becoming more and more technological and those who invest heavily in technology will benefit. Size matters in achieving economies of scale. However, I do think that its possible to become too big, which can result in not being able to service subservicing clients or customers with as personalized/custom experiences as those servicers who are not at the mega scale. Being able to access ancillary income will also separate servicers from those who cannot do so efficiently. Having sufficient capital to withstand market disruptions and to protect customers should something go wrong – thinking cybersecurity here -- is also important. As an long time MSR owner, I like to think that we at Two Harbors and RoundPoint know how to extract the most value from the asset as a servicer to give to the MSR owner. I call that “subservicing for MSR owners, by MSR owners”. and so I think knowledge and skills like that will help us to be successful in growing our subservicing footprint even further.

4. Why are you attending IMN’s Mortgage Servicing Rights conference? What are you looking forward to?

I love coming to this conference and I have been coming since the very first one. Firstly, it’s a place where all of the market’s foremost experts and participants in the MSR market reliably come together every year to share thoughts and compare notes. The topics are similar year to year in the sessions which allows long time attendees to see how the market changes over time. And, of course, I get to see all my old friends from the MSR market that I have made over the years. That’s the best part.

Join Bill Greenberg at Mortgage Servicing Rights conference, Nov 13-14 at the New York Hilton Midtown where 450+ industry executives will be turning MSR market volatility into portfolio vitality - learn more!