What Are Mortgage Servicing Rights (MSR)?

Mortgage servicing rights (MSR) refer to a contractual agreement in which the original mortgage lender sells the right to service an existing mortgage to a party that specializes in t♎he various functions involved with servicing mortgages.

How Mortgage Servicing Rights (MSRs) Works

Mortgages have ongoing administrative duties that are regularly processed for the entire length of a mortgage. Common rights included in MSRs are the right to collect month⭕ly mortgage payments, set aside taxes and insurance premiums in escrow, and forward the interest and principal portions to the mortgage lender. In return, the servicer is compensated with a specific fee, which is outlined in the original contract.

The 澳洲幸运5官方开奖结果体彩网:mortgage payment amount, interest rate, type of loan, and other factors remain the same. As far as the borrower is concerned, only the address to which payments are sent is changed, and you should contact the servicer, rather than your original mortgage lender, with any questions regarding your loan. 澳洲幸运5官方开奖结果体彩网:Your servicer can change at any time, but you should receive notice from your original lender at least 15 days before it happens, and your new servicer should notify you within 15 days of assuming rights as well.

Example of Selling an MSR

Sarah takes out a $500,000 mortgage from Lender A. She sends the lender a monthly payment of principal and interest. Three years later, Lender A transfers its MSR on Sarah’s mortgage to Company B. Under the contract terms, Company B is paid a fee by Lender A for processing all of ♑Sarah’s remaining mortgage payments. The mortgage lender can then spend more time and money providing new mortgages, while the company that assumes the MSR forwards the mortgage payments to the lender. Sarah now 💯sends her monthly payment to Company B instead of Lender A.

Special Considerations

A lender will often sell MSRs to free up lines of credit so it can lend money to additional borrowers. The majority of mortgag♏es🐓 are in effect for 15 to 30 years, and the bank needs billions of dollars to lend money to other consumers🐠 requesting mortgages during this time. Because the term is so long, it is important to do thorough research among the best mortgage lenders.

In a roundabout way, selling MSRs mean𒁏s that more people can become homeowners because the sale of these rights produces revenue.

Lenders also make money by charging fees for 澳洲幸运5官方开奖结果体彩网:originating mortgages and earning monthly interest from payments. Mortgages are simply a🌳dditional assets that bring in more revenue for banks.

History of MSRs

The market for MSRs tends to be strong during periods of economic growth, due to higher quality mortgage originations and fewer defaults. Hedge funds, banks, and 澳洲幸运5官方开奖结果体彩网:real estate investment trusts (REITs) find these assets attractive because MSRs can yield high amounts of interest. For example, SunTrust purchased $8 billion in MSRs in the first quarter of 2016 as a means of earning a solid 澳洲幸运5官方开奖结果体彩网:return on investment (ROI), and within months, its MSR portfolio contained $121.3 billion in unpaid principal balances of loans that the bank was servicing for lenders.

National Mortgage News reported in June 2019 that MSRs "have been one of the best-performing fixed-income asset classes over the past five years." However, it also reported that "since October 2018, as medium- and long-term interest rates have fallen, projected and actual 澳洲幸运5官方开奖结果体彩网:mortgage prepayment assumptions have accelerated, causing the expected average life of MSRs to sh💯orten considerably."

As a result, "MSR values from April to May were down consistently (by a half) multiple." That said, reports National Mortgage News, "the demand from MSR buyers is still very strong, and there is general consensus around MSR values."

The Bottom Line

Mortgage servicing rights, or MSRs, allow a company to purchase the cash flow from a mortgage, even if that person is not the original mortgage lender. Banks and lenders sell MSRs to free up capital, thereby allowing them to originate more loans. Nothing changes for the borrower, except the address where they direct their payments.