How Fine-Tuning MSR Valuations Can Help Lenders Improve Decision-Making

iLeads Mortgage Market Minute


Welcome back to iLeads Mortgage Market Minute, where we bring you the latest, most relevant news regarding the mortgage market. We hope you enjoyed last week’s edition where we talked about Mortgage Applications Fall For Third Straight Week. This week we’re bringing you:


Redfin: Bidding wars drop slightly in June*

But many markets still seeing more than 70% of offers face competition

Competition between would-be homebuyers is still high, but an increase in homes hitting the market in June brought some relief from bidding wars.

Per a recent Redfin study, 65% of the home offers written by company agents in June faced competition, down from a rate of 72.1% in May and a peak of 74.1% in April. That’s still higher than the 56.8% bidding-war rate Redfin saw in June 2020, when the housing market was starting to rebound from a temporary standstill triggered by pandemic shutdowns, said Laura Sechrist Molenda, a Redfin real estate agent based in Southern California.

“The first half of this year was red hot,” Molenda said. “It was almost impossible to get an offer accepted. But recently, we’ve started to see buyers get cold feet. Two of my buyers just had their offers accepted because the sellers’ first buyers backed out. The market is still competitive, but buyers are more trepidatious than they were at the start of 2021 and less willing to pull out every stop in order to win.”

The housing market has been losing steam in recent weeks following months of relentless competition and surging prices, Molenda said — driven by an intensifying housing shortage and a pandemic moving spree made possible by remote work.

“Buyer fatigue is likely one factor pushing down the competition rate, with some house hunters moving to the sidelines after losing bidding war after bidding war or getting priced out,” she said.

An improving supply situation may also be making a difference, with new listings up 4% year over year — meaning more properties are hitting the market for buyers to bid on.

In 2018-2019, total housing inventory was in the range between 1.52 million and 1.92 million, and that level of inventory helped to drive real home-price growth in 2019 into negative territory briefly. Existing home sales during those years stayed in the monthly sale range of 4.98 million to 5.61 million homes, according to the National Association of Realtors.

Read more in-depth here.


Mortgage Application Volume Bounces Back, Refi Share up 20%*

Mortgage application volume during the week ended July 9 featured the largest weekly increase since the first full week of 2021. The Mortgage Bankers Association (MBA)said its Market Composite Index, a measure of that volume, rose 16.0 percent on a seasonally adjusted basis. Like the week ended January 8, last week’s number represented a bounce-back from a major national holiday, but declining interest rates probably also played a role. The increase before seasonal adjustment was 7.0 percent.

The Refinance Index increased 20 percent from the previous week but was 29 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 64.1 percent of total applications from 61.6 percent the previous week, the highest share for refinancing since Mar 5.

The seasonally adjusted Purchase Index increased 8.0 percent from one week earlier but was down 13.0 percent before adjustment and was 29 percent lower than the same week one year ago.

“Overall applications climbed last week, driven heavily by increased refinancing as rates dipped again. Treasury yields have trended lower over the past month as investors remained concerned about the COVID-19 variant and slowing economic growth,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Mortgage rates fell for the second consecutive week as a result, with the 30-year fixed-rate hitting 3.09 percent, its lowest level since February 2021. Refinance applications increased over 20 percent last week after adjusting for the July 4th holiday, aided by a 23 percent increase in conventional refinance applications. Also, there may have been a delayed spillover of applications from the previous week, when rates also decreased but there was not much of response in terms of refinancing applications.”

Read more in-depth here.


How fine-tuning MSR valuations can help lenders improve decision-making*

Lenders cannot afford to wait until month-end or quarter-end to understand what is happening with their servicing portfolios

Over the course of the last year, the mortgage industry has seen increases in origination volumes and decreases in released servicing bids. This has caused servicing portfolios to grow to represent the largest single asset on many lenders’ balance sheets, making it critical to keep a pulse on the value of servicing rights.

Lenders reported significant origination volume in the first quarter of 2021, but as rates change and the market shifts to a more purchase-driven origination environment, lenders need to carefully monitor margins and profitability. If we’ve learned anything in the past year, it’s that operational flexibility and accurate servicing valuation are key to lending profitability.

Historically, mortgage servicing rights (MSR) have been valued once per month or once per quarter. With the recent increase in market volatility, lenders cannot afford to wait until month-end or quarter-end to understand what is happening with their servicing portfolios. Fortunately, with advanced technology and the proliferation of APIs, lenders can now apply the same forms of daily reporting and metrics to their servicing rights as they do to their loan originations.

Mortgage Servicing Rights (MSR)

Recently, solutions have become available that enable lenders and servicers to tackle pricing and portfolio management on various fronts. Companies ranging from small credit unions to large mega-servicers can benefit in multiple ways from having a detailed MSR valuation embedded in their daily processes. Using more accurate MSR valuations, originators can fine-tune pricing so they can be competitive without leaving money on the table or being undersold for less-than-timely MSR grids.

In addition, updating MSR values more frequently and leveraging them in pipeline analytics can help lenders produce month-end or quarter-end financial statements with a consistent MSR valuation throughout the process. Armed with this data, lenders can make smart decisions on whether to retain or sell servicing and introduce full loan-level transparency into their portfolios.

Read more in-depth here.


Finding highly affordable leads to keep sales coming in

At iLeads, we have many great solutions for mortgage LO’s at a low cost. If you’d like to see how we can help you bring in consistent sales for a great price, give us a call at (877) 245-3237!

We’re free and are taking phone-calls from 7AM to 5PM PST, Monday through Friday.

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