15 October, 2020
Mortgage servicing rights (MSR) are an important asset for many financial institutions and may be the largest asset for many independent mortgage banks. MSR portfolios provide substantial revenue and can also play a role in offsetting risk on the production side of the business when rates rise and production slows. Addionally, when lenders retain the servicing rights on a mortgage, they have the opportunity to support the borrower’s other financial needs during the life of a loan.
When it comes to making decisions about selling this important asset, extensive analysis and consideration are essential to weigh the rate of return needed to justify forgoing cash at the point of sale. Lenders must decide at the point of sale whether to service the mortgage and receive future income streams or sell the servicing rights of the loan to another party for a fee. Strategy and decisions regarding the MSR portfolio should be a fundamental and daily process for decisions makers.
Since MSRs are an opaque asset with sensitivity to multiple parts of the yield curve — affected by numerous internal and external dynamics — frequent valuations are necessary. Typically, they are done on a quarterly or monthly basis. But many factors can occur intra-month that could potentially affect a MSR’s value, which in turn impacts any buy, sell and hedge decisions or risk mitigation efforts.
Financial institutions that want to avoid unwelcome month-end surprises, as well as have the most current information on which to base its daily decisions, should consider getting more frequent valuations. Of course, one of the pain points is the amount of time and resources involved in performing more frequent valuations.
Through Black Knight’s recent integration of its MSP® servicing system with CompassPoint℠, MSP clients can now benefit from a seamless, automated daily MSR valuation, including recapture stats, daily valuation reconciliation, and advance projections sent directly via email.
CompassPoint, one of the industry’s most robust and granular MSR valuation models, provides the tools, reporting, analytics, and automation necessary to help servicers value and price portfolios in a seamless and timely manner.
How it Works
Each night, an MSP feed of the client’s portfolio is automatically run through the CompassPoint valuation tool. The next day, clients receive an email where they can easily view their daily portfolio value change on an intuitive dashboard. They can also compare the data to the performance of the previous day, month and two months.
The dashboard includes such data as total unpaid balance, total number of loans and new loans boarded, as well as payoffs, non-performing loans, re-performing loans, and investor advances. With interest rate information updated daily, clients can gain insight into whether increases or decreases in portfolio value were impacted by changes in the rate environment. The interest rate valuation change is broken down into component parts to provide insights about the sensitivity of a portfolio to different interest rate derivatives.
In addition, the dashboard data includes the projected prepayment and delinquency rates by leveraging Black Knight’s market-leading AFT Prepayment and Credit Model.
Financial institutions also want to know information that can help them with their retention efforts. An integration with CompassCapture℠ lets clients know what percentage of their loans are eligible for a refinance or cash-out financing. Clients can also find out the number of properties in their portfolio that are listed on the MLS.
Critical Daily Insights to Support Strategic Decisions
The integration of MSP with CompassPoint enables MSP clients to receive real-time valuations about their portfolio on a daily basis without dedicating time or resources. And, clients benefit from a comprehensive, proven valuation platform, which is currently used to value over 90% of servicing assets in the U.S. It’s a simple, powerful way for clients to get the critical data needed to maximize their business strategies and better understand the valuation of their MSR portfolio.BACK