Mortgage subservicing is having a makeover moment

Fueling this moment is a persistently high interest rate environment, which has increased the value of mortgage servicing rights (MSRs) — the asset outsourced to subservicers — due to slower prepayment speeds. For subservicers, managing loans can generate stable income through fees, and when agreements allow and align with their strategy, it opens doors for cross-selling activity. 

Still, the overall subservicing space has been “relatively static in recent years,” said Walter Mullen, chief strategy officer at Onity Group, the parent company of PHH Mortgage (the seventh-largest subservicer in 2024, according to Inside Mortgage Finance).

Indeed, the total residential subservicing market declined to $3.96 trillion as of Dec. 31, 2024, down from $3.99 trillion a year earlier, per IMF.

In the recent wave of consolidation, Mr. Cooper has emerged as the most active player, acquiring Home Point Capital, Roosevelt Management Co. (including affiliated Rushmore Loan Management Services) and Flagstar’s servicing assets. 

In addition, Two Harbors Investment acquired RoundPoint Mortgage Servicing and Rithm Capital closed a deal for Computershare Mortgage Services, bringing in Specialized Loan Servicing. Meanwhile, UBS sold Select Portfolio Servicing to a group of investors led by Sixth Street. 

Onity and Cenlar — the second-largest player, with a $742 billion subservicing book at the end of 2024 — are reportedly in talks to sell, although both dismiss these claims as rumors. Meanwhile, MSR player Bayview Asset Management is in M&A talks with Guild Mortgage. 

What are clients looking for?

While each deal represents a unique circumstance, they point to a broader industry truth: Scale has become increasingly critical as the cost of servicing continues to climb —particularly for nonperforming loans.

“There’s a lot of consolidation in the [subservicing] industry. That’s mainly because, on the front end, with a high interest rate, there’s a real stagnation in mortgage origination,” said Anna Krogh, director of business development at Dovenmuehle Mortgage, the third-largest U.S. subservicer in 2024 with a $340 billion portfolio.

“The bigger fish will get bigger. We’ve seen that across the board.”

For MSR holders, the decision to subservice their loans is largely driven by cost efficiency and the rising burden of compliance.

According to the Mortgage Bankers Association’s most recent data, the cost of servicing a performing loan in-house averaged $176 in 2023 — but that figure can increase tenfold for delinquent loans. Industry executives said subservicing can bring savings, particularly for smaller originators without the infrastructure to manage growing regulatory requirements. 

At some point, those who intend to service loans in-house need a team and technology to meet today’s compliance and cost challenges, said Tom Donatacci, chief client officer at Cenlar.

“If you don’t, the downside is tremendous,” Donatacci said. “It’s a high-risk environment from a compliance perspective, and that’s actually driving more interest in subservicing.”

Despite higher demand, consolidation has put downward pressure on subservicing fees.

Another factor contributing to this trend is the growing group of Wall Street MSR investors, who are more price-sensitive and put presssure on subservicing fees. Additionally, some subservicers are charging lower fees and are more aggressive in competing for business. While thin margins may benefit them in the short term, executives say they can be difficult to sustain in the long term.

As for what’s next in terms of M&A activity, the opinions of industry experts diverge. 

Mark DeVries, senior research analyst at Deutsche Bank, said some “larger mortgage companies remain somewhat skeptical of the value of buying a big servicing book, paying a lot of money for leads that you could generate organically, without having to pay a big premium.” He does not know “who the bids are going to be.” 

Mihir Bhatia, a Bank of America analyst who covers mortgage companies, said he expects the trend to continue.

“There’s been M&A activity in subservicing for the past two or three years, and I expect that to continue as people try to find niches,” he said. “If interest rates start coming down, maybe people will be much more focused on just driving origination. But otherwise, [M&A] remains very much on the table for the industry.” 

The biggest fish

Mr. Cooper is the biggest fish in the subservicing sea. At the end of 2024, the company had an $820 billion portfolio. By itself, Mr. Cooper represents 20.7% of the volume across the top 25 subservicers.

But Rocket’s agreement to acquire the firm is shifting industry dynamics. Some clients are questioning how a subservicer, when combined with an origination platform, might threaten their borrower relationships and weaken their ability to offer products over time. As a result, these clients have started conversations with competitors. 

“We’ve had a lot more inquiries; I don’t think the paint is even close to dry yet,” said Mullen of Onity Group. According to him, every time there’s a deal in the space, clients reconsider their servicing options — but the Rocket-Mr.Cooper deal raises more questions due to its scale.”

Samantha Manfer, chief business development and brand officer at Planet Home Lending — a $13 billion subservicer in Q4 2024, per IMF — said her company is receiving more inquiries “because the M&A seems to be lateral, and not deepening the opportunity for companies to grow or pivot.”

The most notable client to exit the Rocket–Mr. Cooper platform so far is UWM. Analysts estimate Mr. Cooper subserviced less than half of UWM’s roughly $215 billion MSR portfolio that’s mainly tied to Ginnie Mae loans. UWM declined to confirm this detail to HousingWire.

The top U.S. lender has brought its servicing in-house, but part of its MSR portfolio remains with Cenlar — likely Fannie Mae and Freddie Mac loans, per analysts.

Analysts expressed concern that brokers could perceive UWM as a competitor now that they serve loans internally. In response, a UWM spokesperson said the lender “doesn’t have [a] retail” channel and that its model is “built to support, not conflict with, independent mortgage brokers.” 

Companies can use no-solicitation agreements to protect their borrowers, although they’ll likely pay higher fees for this. Another option is to proceed with a solicitation agreement — if they trust their client relationship.

Rocket offers a third model, such as the one it uses with Annaly Capital Management — an MSR investor with no origination channel. Annaly retains MSR ownership and seeks the interest security, while Rocket is allowed to solicit borrowers and earns a fee if successful.

“Rocket has a pretty good servicing and recapture business,” said Bhatia, the Bank of America analyst. “The concern for the MSR owner is that Rocket can offer that customer a better interest rate — it can get refinanced away from me.”

A Rocket spokesperson emphasized that its recapture rate is 83% — three times higher than the industry average. 

During a recent earnings call, chief financial officer Brian Brown said that Rocket “fully supports” Mr. Cooper’s subservicing platform and plans “to completely honor the contractual provisions” with clients. 

What’s next for subservicers?

Subservicers take varying approaches in response to the Rocket–Mr. Cooper deal. Those with an origination arm defend their business model, while others view a sole focus on subservicing as a competitive advantage.

Manfer, from Planet Home Lending, said the company also has an origination platform but does not compete with its clients.  “We actually have a completely separate and dedicated team that works specifically with subservicing clients. It’s not shared resources,” Manfer said.  

Onity said it runs a retail consumer direct channel focused on client retention. The company is growing organically despite rumors of a sale. While most of its portfolio is agency-backed, it’s also the second-largest nonagency servicer and handles commercial and business-purpose residential loans. 

“We don’t comment on market rumors and speculation,” a spokesperson for the company said. “We are focused on executing our strategy and key business imperatives, which are accelerating organic growth, differentiating operating performance, and elevating the customer experience.”

Donatacci said that Cenlar clients find comfort in the fact that the company does not originate loans.

“You can talk about Chinese walls all you like, but if origination is the core of your business and the value of those relationships is the future of your company, it drives a certain amount of anxiety in certain entities [like the Rocket-Mr. Cooper deal] — which is driving some of the movement in the industry and creating opportunity for other subservicers.”

The same noncompete approach with clients is also emphasized at Dovenmuehle Mortgage — which, according to Krogh, neither originates loans nor holds its own MSR portfolio. 

“Traditionally, subservicers were operational partners,” she said of the evolution of the business. “Then that transitioned into becoming technology partners. Now, the evolution continues toward being data platforms — subservicers helping you maximize your servicing data to support relationship retention, cross-selling and mortgage recapture.”