With Prepayment Rates Climbing, Servicing Prices Are Crumbling.(Brief Article)

The recent resurgence in refinancings has been a boon to originators, but the servicing side of the industry is still singing the blues over the declining value of housing receivables.

In a recent research report, MIAC Analytics, New York, noted that the "gloomy picture of the MSR market described in our July 15 MSR (mortgage servicing rights) Monthly Market Update" has worsened.

"Dealer consensus prepayment speeds are at all-time highs and very large segments of the mortgage market are now refinanceable," the firm notes.

One servicing broker, requesting anonymity, described prepayment speeds on servicing as "evaporative." He described the conventional bulk servicing market as "dismal."

Recently, Countrywide Home Loans, Calabasas, Calif., wrote down the value of its residential servicing rights by a stunning $4.4 billion. The writedown resulted in a pretax loss on servicing of $168 million, but the firm - thanks to booming originations (and origination fees) - still managed to post record profits in the quarter. (Countrywide was able to offset the decline in servicing values by hedging those receivables.)

Countrywide CEO Angelo Mozilo told Mortgage Servicing News recently that the firm's expertise in producing loans, especially during a refi boom, far outweighs any downside on the servicing side.