Investors Buy Low-Coupon Mortgage Servicing Rights

Sage Residential founders Mark Volosov and Damian Pasternak have built a mortgage servicing rights (MSR) platform that has acquired roughly $180 billion of unpaid principal balance and now manages more than $2 billion in assets. The portfolio’s weighted average coupon is about 3.8 percent, reflecting a focus on low‑rate loans.

Volosov and Pasternak spent about two decades in the U.S. residential mortgage sector and led an MSR business at BlackRock that reached roughly $200 billion of UPB. They raised capital in 2021 after a one‑year delay tied to the Covid pandemic and launched Sage with a four‑person team; the firm has since grown to 17 employees and expanded its investment and servicing functions.

Sage’s strategy concentrates on servicing created when borrowers refinanced to historically low rates during the pandemic. Low‑coupon loans typically prepay more slowly, extending the duration of servicing cash flows. The firm has sought such exposure through direct, negotiated purchases, completing about 60 transactions, most of them bilateral and off‑market rather than in broad auctions.

The firm pursues MSRs that its managers assess as less likely to refinance, a feature reflected in the portfolio WAC near 3.8 percent. Volosov noted that many borrowers now have loan‑to‑value ratios around 50 to 60 percent and mortgage rates of roughly 3 to 4 percent, making replacement with current rates near 7 percent unattractive for those homeowners.

To reduce the risk that homeowners access equity by refinancing their first mortgage — which would eliminate the related MSR — Sage launched a fixed‑rate closed‑end second‑lien program. The firm has originated more than $1 billion of second liens through partners, and much of that activity connects to loans the firm services.

Risk management for the MSR book includes continuous monitoring of mortgage and interest‑rate trends and detailed tracking of home‑price changes at metropolitan and county levels to model likely defaults and prepayments. Sage uses interest‑rate hedges such as swaps and to‑be‑announced (TBA) securities and employs deep out‑of‑the‑money swaptions to protect against large downward moves in rates.

Sage has raised capital from a range of institutional investors. The firm reports that conventional MSR portfolios now attract far more bidders than in the past; Volosov said portfolios that once drew three to five suitors often attract double‑digit bids today. He added that large banks, which have increased servicing efficiency, are likely to be more active acquirers.

Sage maintains a focus on servicing income rather than deposit gathering or cross‑selling. The firm attributes its growth to direct sourcing relationships, negotiated transactions and its capital‑formation work, which it says helped scale the business more rapidly than some peers that started at the same time.