MCT's Update for the Current MSR Market 11/3/2023

By Danielle Dvorchak posted 11-03-2023 14:52


Mortgage rates and most indices continued their ascent during the month of October.  Mortgage rates managed to end the month higher than 9/30/2023 levels by about 40 basis points, while float income rates managed to gain about five (5) basis points over 9/30/2023 levels.  Mortgage production remained weak during October due to higher mortgage rates in addition to continued low real estate/housing inventories throughout the country.
Market values for existing MSR portfolios remained strong during October, however, we are observing some retraction in MSR market values as the number of bulk MSR offerings and potential buyers are both below levels the market experienced during the first three quarters of 2023.  MSR market values remain higher than current fair value levels by about 5-10 basis points but have been weakening since the end of September. We continue to observe some buyers, particularly banks, starting to pull back from the bulk market and have become more selective. Most buyers are currently in a "Wait and See" mode and mainly looking for bargains as the year comes to a close.
As of October 31, 2023, the current 30 Year base mortgage rate is 7.5365%, which represents about a 40 basis point increase from their September 30th mark. We anticipate that existing portfolio fair values to be flat to slightly higher from their 9/30/2023 marks in the range of about 1-2 basis points, depending on underlying portfolio characteristics. While overall values should remain strong, all of 2020-2021 productions have peaked in value and have no room for further growth in value.  However, 2022-2023 production is expected to show value gains in the range of 2-4 bps, depending on loan characteristics.
While MSR fair values in basis points remain steady and strong, MSR dollar values are eroding due to the fact that 2020 -2022 production have very low interest rates, therefore, as borrowers make their regular payments, the natural principal payments make up approximately 40-60% of total principal balance runoff which includes portfolio payoffs.  Most lenders generally retain only about 20%-30% of their production which barely covers the principal balance that ran off. This is the primary driver that is causing the dollar value of portfolios to continue to decline while the basis points values remain level.
For portfolios that have a mix of Conventional and Government loans, we anticipate Fair Value changes as follows:

  • Conventional loans between -1 to +1 bps change from September 30, 2023 marks.
  • Government loans between -1 to +2 bps change from September 30, 2023 marks.
    • GNMA loans are experiencing a continuous uptick in delinquency rates which generally began in Q2, 2022.  Due to the increase in delinquencies, we are currently monitoring those trends and are consequently more cautious with our GNMA fair value estimates at this time.

If you have any questions or comments, please contact MCT's MSR team. 

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