May 2026 MSR Index: Rising Rates, Falling MSR Values

MSR values on newly originated loans continued to decline in May as mortgage rates moved higher amid renewed inflation concerns tied to geopolitical instability in the Middle East.

What stands out, however, is that prepayment activity has not slowed as much as expected. In a typical rising-rate environment, prepays decline. Instead, borrowers may be attempting to refinance now before rates increase further.

This unusual disconnect between higher mortgage rates and relatively resilient prepay behavior is adding additional pressure to MSR valuations and will be an important trend to watch in the months ahead.

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