Mortgage REITs Likely to Become More Active in Securitization, Lawyer Says
04/10/2013 | by Allen Kenney

Mark Van Deusen, partner with Hunton & Williams, joined REIT.com for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, Calif.

Van Deusen provided some analysis of “excess mortgage servicing rights” and why they’re important for mortgage REITs. Excess mortgage servicing rights refer to a portion of the servicing rights that are created when an originator or seller of loans securitizes loans, sells them and retains an obligation to service the loans in exchange for a fee based on the outstanding principal balance. The fee’s components include compensation for providing the services and the excess, which is an interest in the underlying interest income from mortgage loans that have been securitized.

“A lot of banks are looking to sell the excess MSRs that they hold,” Van Deusen said. “Also, the IRS has just issued a private letter ruling indicating that excess MSRs will be treated as good assets producing good income for the REIT income and asset tests. That private letter ruling has really clarified the law and made a lot of folks look at acquiring this new type of asset inside of a REIT.”

Van Deusen also discussed the role that mortgage REITs are playing in securitization activity. Van Deusen said he expects more REITs will become more active in that area.

“During the financial crisis, it was all about the agencies,” he said. “When I am talking to potential new clients that are looking at starting mortgage REITs, one of the asset classes that they always talk about doing is jumbo loans and potentially securitizing those. I think over time that is going to come back into play.”

Van Deusen gave his opinion on the dominant emerging trends in the REIT industry.

“I think a lot of it is going to depend on what comes out of Washington,” he said. “What happens with interest rates? Do we continue to have a low interest-rate environment that has allowed so many REITs to be able to issue stock because of the search for yield that is out there? I do think it’s all about Washington for a little bit.”