Citi’s deal to dispose of its non-client MSRs and restructure the rest reconfirms the malaise that we forecast would grip the U.S. mortgage market starting with the 2010 Basel III rules and proceeding through U.S. implementation in 2013 and to the tough treatment servicing gets in the big-bank stress tests and other new rules.  This is further proof – if proof is needed – that servicing is going to non-banks for as long as FHFA and Ginnie allow.  It’s also still more proof that PLS from bank originators are unlikely – without servicing capacity and with portfolio capacity, why give away the good stuff?  Here, we assess the regulatory economics of these transactions from a bank’s perspective and the potential for changes to them if President Trump does the “big number” on Dodd-Frank promised today.

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