Mortgage Servicing Rights Analysis

Overview

QuantyPhi offers a Mortgage Servicing Rights (MSR) valuation model for credit unions. QuantyPhi built the sophisticated model to calculate the value of a credit union’s mortgage loan servicing income on loans that have been sold, but for which the servicing rights are retained as an income stream.

To highlight the effectiveness of QuantyPhi’s MSR model and prove the benefits of viewing MSR valuations with an ALM and interest rate risk focus, a detailed case study was conducted. The case study is based on characteristics of actual credit union real estate loans sold portfolios and spans multiple years and significant changes in market interest rates.

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Key Benefits

QuantyPhi's MSR model provides credit unions with an accurate way to record a present value based on the variable future cash flows of these loans.

• Each loan is examined individually.
• Sophisticated process to determine forecasted prepayment speeds, combining expert market consensus on large pools of outstanding mortgages with excellent geographic dispersion. Projections based on pools of 33 million individual mortgages with a current amount of over $4.7 trillion.
• Prepay projections segregated by loan term (10-, 15-, 20-, and 30-years), loan origination year, and loan interest rate to determine the best prepayment rate for each individual loan based on the loan’s specific characteristics.
• A dynamic discount rate is used that combines the loan spread at origination date and the current yield curve.
• Results provided showing base case, zero prepayment, +300, +200, +100, -100, -200, and -300 interest rate scenarios. This provides a good range of expected valuations should rates change one way or another. 

QuantyPhi will provide a detailed final report including our process, results, and recommendation.

The value of MSRs must be reported as an asset amount on your credit union’s call report and should be determined by calculating the net present value of all expected future income from servicing the loans. QuantyPhi’s model uses industry-best prepayment projections and distinct discount rates, applied granularly to each mortgage loan. Further, the results are shown under not only a base case interest rate projection, but also potential shocked rate environments to give an expected array of results based on future interest rate fluctuations.

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