Dr. Healy’s MSR Market Watch: Higher Rates Support Newly Originated MSR Values

Mortgage rates continue to play an important role in the valuation of mortgage servicing rights, with changes in rates affecting both discount rates and expected prepayment behavior.

This month, those two forces moved in opposite directions. While higher rates put upward pressure on the discount rate, creating a negative impact on MSR value, they also contributed to slower expected prepayments, which can support MSR values.

Here’s the latest perspective from Dr. Thomas Healy:

MSR Values on Newly Originated Loans

MSR values on newly originated loans is up a bit this month. Rates increased from last month, which pushed up the discount rate (negative impact on value) but decreased prepay speeds (positive impact on value). There seems to be a general belief that rates will continue to rise.

What It Means for MSR Valuations

The latest movement highlights the importance of looking at the different components of an MSR valuation together. A change in interest rates can create both positive and negative valuation impacts, depending on how it affects discount rates and borrower prepayment behavior.

With the market currently anticipating continued increases in rates, monitoring these relationships will remain important for servicers and institutions managing MSR portfolios.

Stay Ahead of the Market with Level1Analytics

As market conditions evolve, understanding not just where MSR values are moving, but what is driving those changes, can provide valuable insight for portfolio management and decision-making. Stay tuned for more MSR and prepayment analysis from Level1Analytics.

At Level1Analytics®, we track market dynamics in real-time to help institutions make informed portfolio decisions. Interested in learning more?

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