Slideshow 7 Wild Cards in the Value of Mortgage Servicing Rights

Published
  • November 25 2015, 10:58am EST
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No two mortgage servicing rights portfolios look the same, and buyers have strong opinions about the kinds of deals they want to do. Here are some factors that can swing MSR transaction values, according to Matt Maurer, managing director at MountainView Capital Holdings. Here are some factors that can swing MSR transaction values.

State Escrow Requirements

Bidders pay less if servicing rights are tied to loans in states that require a percentage of interest on escrow accounts be returned to borrowers. Eight states do so: 2% (New York, California), 0.09% (Connecticut), 0.07% (Massachusetts, Maine), and 0.05% (Oregon, Rhode Island and Vermont).

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Leverage

Buyers avoid MSRs that could be seized by creditors. So if, say, a mortgage bank had used servicing rights as collateral on an advance from another financial institution, it needs to repay that debt before taking those rights to market.

Missing Data

If information related to a portfolio is incomplete, some bidders reject it. Buyers want details like whether flood insurance contracts span the life of a loan and are transferable.

Volume Preference

Bulk deals for at least $200 million of servicing rights, commitments to buy $40 million of MSRs or more each month over a period of time, or agreements that offer the potential for repeat business provide much stronger cost-benefit advantages than small, one-time transactions.

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VA Loan Insurance Limits

Bidders may take a dimmer view of rights tied to VA loans with unrestricted loan-to-value ratios, unless home price appreciation offsets the risk that losses will surpass government coverage.

Reps and Warrants Risk

If sellers are smaller and lack the resources to repay breaches of representations and warranties, buyers could be responsible for that debt.

Fast Prepayments

Rights to loans that could be paid off quickly raise concerns, too, like larger loans from California. Fannie Mae loans from the Golden State, for example, get repaid 126% times faster than the national average.