WD Q4 2024: Servicing Fees Compress as Volumes Rise; Eyes 2025 GSE Cap
- Expansion into new verticals: The company is actively expanding its service offerings, such as hiring a specialized hospitality investment sales team to complement its established multifamily operations, which creates cross-selling opportunities and diversifies revenue streams.
- Robust agency business with growth catalysts: There is solid, standard deal flow in the agency channels, with potential tailwinds from increased agency lending caps for 2025, positioning the company to improve its Fannie Mae and Freddie Mac market share.
- Strategic focus and operational improvements: Ongoing management initiatives — including potential strategic partnerships, enhanced affordable housing operations through new management teams, and a continuously evolving business model — support long-term growth and market share expansion.
- Regulatory and Political Uncertainty: There is persistent uncertainty around the future of Fannie Mae and Freddie Mac, including the potential privatization tied to tax legislation. Any delay or change in policy could disrupt refinancing markets and add uncertainty to future volumes.
- Compression of Fee Revenues: Despite high transaction volumes, average servicing fees were noted to be lower in the quarter, suggesting pressure on fee-related income even as market activity picks up.
- Risks Related to Asset Distress: Rising interest rates are pushing some borrowers toward cash-in refinancing or asset sales, which could lead to a wave of distressed asset situations if recapitalizations fall short.
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Asset Workouts
Q: Are distressed assets being resolved?
A: Management explained that many borrowers face refinancing challenges—swapping floating for fixed rates often needs recapitalization. As a result, some assets may be sold or reequified when maturities are reached, but this wouldn’t trigger broad market distress; instead, W&D will help clients manage these transitions. -
GSE Timeline
Q: Updated timeline for GSE changes?
A: Management noted that if GSE privatization is tied to the tax bill, action might accelerate in 2025; otherwise, delays to 2026–27 are expected, reflecting the complexities of policy and market timing. -
Agency Volumes
Q: Update on Fannie and Freddie volumes?
A: Management stated that both agencies started the year on a typical note with no mid‐quarter volume updates; however, they highlighted a significant opportunity to improve their position with Freddie Mac going forward. -
Agency Concentration
Q: Why focus on Fannie Mae deals?
A: Management clarified that the apparent concentration was due to consistent, flow business with regular but lower servicing fees amid higher rates, while both agencies are expected to ramp up activity as market conditions normalize. -
Business Model
Q: Is the business model now complete?
A: Management emphasized that although W&D is well positioned and has expanded its capabilities, they remain committed to ongoing innovation and additional enhancements, continuously evolving rather than being “complete”. -
Hospitality Expansion
Q: How is the hospitality market viewed?
A: They see substantial promise in hospitality, leveraging overlap with multifamily clients and targeting leisure segments, even as urban sectors face challenges from post-pandemic shifts. -
JV Opportunities
Q: Possibility of joint ventures with asset managers?
A: Management noted that while W&D has grown its asset management business independently, partnering with alternative asset managers remains a potential option to further drive fee revenue. -
Affordable Housing
Q: What’s the outlook on low-income housing tax credits?
A: Management expressed strong confidence in the core LIHTC business, particularly after effective management changes and continued support in Washington, promising solid growth prospects.
Research analysts covering Walker & Dunlop.