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Net Economic Value.(mortgage servicing)(Brief Article)
Under Generally Accepted Accounting Principles, the best way to determine the value of a portfolio of mortgage servicing rights is to turn to the marketplace. Prices established by recent trades of similar portfolios are a company's first and best means of determining the fair market value of their mortgage asset.
But with rates falling last year, few bulk servicing transfers came to market. Fears about portfolio runoff kept skittish buyers on the sidelines, and that has made price discovery more difficult, according to a recent report from PricewaterhouseCoopers. And with 30-year home loan rates still bouncing around at or below 7% early this year, the market hasn't picked up.
That absence of market data, according to the accountants, has left mortgage companies looking at "net economic value" measures to benchmark the value of their servicing rights. And we think this may be a good thing.
At its core, determining net economic value requires lenders to compare the assumptions they have made about cash flow when they acquired servicing rights with the actual cash flow results being achieved through loan administration. Too often, according to PricewaterhouseCoopers, the assumptions lenders are making don't pan out.
Because many people in the operation can affect cash flow details, just about any point in the servicing ...
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Source: HighBeam Research, Net Economic Value.(mortgage servicing)(Brief Article)