MSR Values Called Into Question.(Brief Article)

It's not just the historic low interest rates of the past year that have called mortgage servicing valuations into question, the chief economist of Mortgage Bankers Association of America told industry executives meeting here.

Other factors, such as innovative loan products and aggressive consumer debt management, have raised questions about the assumptions that go into calculating the value of mortgage servicing rights. Last year, heavy refinancing caused the average lender to take a hit on the value of its servicing portfolio, according to a recent MBA cost of servicing study.

MBA economist Douglas Duncan said the proclivity to refinance is different today from several years ago, in part, because consumers have the tools to manage their debt more flexibly.

"I think it is going to call into question MSR valuations. And in fact some companies are seriously questioning MSR valuations in light of this refi boom, but I think this is a longer-term issue, not just a current issue," he said during the MBA's National Mortgage Servicing Conference.

Increasingly, companies are looking at whether or not being in the mortgage servicing business adds value for shareholders, he said.

To make reasonable decisions, servicing managers may need to parse their portfolios by looking at more detailed metrics than in the past, he said.

That means slicing the portfolio up by loan purpose, loan type, geography or other factors so that they can determine what parts of the portfolio are adding value and what parts may be causing a drag.