Irwin Scales Back It's MSR Exposure.

For most lenders, the third quarter of this year was a good one in terms of mortgage servicing valuations. But after several years of heavy amortization and impairment expense, not everyone is happy about the idea of having mortgage servicing rights as a big-ticket item on their balance sheets.

As has happened in the wake of previous refinancing booms, it appears likely that some lenders will downsize their MSR portfolios or get out of the business altogether in order to mitigate the impact that volatile MSR valuations can have on their balance sheets.

One lender that has reduced its MSR portfolio and may not be finished selling MSRs is Irwin Financial Corp., Columbus, Ind. A big mortgage and home-equity lender, Irwin recently sold servicing rights on $1.8 billion during the third quarter, reducing its servicing portfolio from $20.8 billion at the end of June to $18.5 billion at the end of September.

The company had disclosed in its second-quarter filing that it planned to engage in mortgage servicing sales to manage the size of its portfolio.

Irwin has sold MSRs in each of the last four quarters, in part because the company has found it difficult to successfully hedge the volatility in MSR valuations, chief financial officer Greg Ehlinger told MSN recently.

He said the valuation volatility, the difficulty in hedging and the size of the portfolio relative to ...