Valuations.(management and forecast of mortgages)

When it comes time for lenders to appraise their mortgage-servicing asset each quarter, a lot of servicing executives face a nervous prospect.

In today's environment, just about all of the assets that affect a mortgage servicing operation face uncertain prospects. Mortgage rates were lower at the end of 2007 than they had been in some time, putting pressure on the value of mortgage servicing rights. Fortunately for lenders, many benefited from hedging "out-performance," as the financial instruments used to hedge that asset gained more value than the servicing rights lost. But hedging out-performance only highlighted the inexact science of trying to protect yourself from the volatility inherent in servicing values.

Portfolio runoff declined, in part because lenders across the board tightened underwriting in the wake of the subprime crisis, giving borrowers fewer refinancing options. But while that helped reduce portfolio churning, it also reflected a difficult housing market. As lenders know, one of their biggest worries today is about the value of the collateral ...