Rising Rates Boost MSRs.

At the end of the third quarter, the prevailing rate on 30-year, fixed-rate mortgages was about 50 basis points higher than it was at the beginning of the quarter. That's welcome news for loan servicing managers, who have probably tired of explaining "impairment" to corporate chiefs after a three-year refinancing binge.

And by all accounts, the third quarter shaped up to be a pretty good one for the mortgage industry at large. Not only did big servicers get to recoup some value for their mortgage servicing rights, but the loan origination side of the business did pretty well, too. That, in large part, is because of the substantial pipeline of loan applications that spilled over from the more robust lending environment of the second quarter into the third quarter.

But this wouldn't be a newspaper if we didn't dwell for a second on the downside of good times. Rising interest rates will make servicing rights shine, of course. But rising rates usually spell trouble for the home loan industry in the long term.

That's because rising rates will choke off new loan volume. In recent years, companies have dramatically expanded their capacity to make home loans, with the industry's biggest players ...