Recapture profitability fades as mortgage portfolios expand

"In its latest move centered on recapture, private investment firm Rice Capital announced Friday that it's buying retail and consumer-direct lender Rosegate to make its products available to mortgage servicing rights (MSRs) that lack embedded recapture agreements. The deal adds to several recent transactions including Rocket Companies' acquisition of Mr. Cooper Group and Bayview Asset Management's deal for Guild Holding Co. in which firms have looked to expand their servicing portfolios and lower customer acquisition costs."

"Reflecting these pressures, PennyMac Financial Services wrote to the Financial Accounting Standards Board in August, asking it to determine whether recapture should be incorporated into standard financial reporting. Ken Adler, managing director at Annaly Capital Management, said that the idea of pricing in recapture wasn't historically common but a change brought about by the COVID-19 pandemic. During that period, rates went down to 3%, origination margins widened and the value of recapture went beyond the MSR value, creating material revenues, he said."

Private investment firm Rice Park Capital agreed to acquire Rosegate Mortgage to offer Rosegate products to mortgage servicing rights (MSRs) that lack embedded recapture agreements. Related transactions include Rocket Companies' acquisition of Mr. Cooper Group and Bayview Asset Management's deal for Guild Holding Co., as firms expand servicing portfolios to lower customer acquisition costs and access future origination from refinances and home-equity products. Rising competition and shrinking recapture premiums have weakened recapture economics, prompting PennyMac Financial Services to ask the Financial Accounting Standards Board whether recapture should be incorporated into standard financial reporting. Pricing in recapture became more common after the COVID-19 rate decline.

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