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Mortgage rates continued their downward trend during the second half of February. Freddie Mac’s weekly primary 30-year fixed rate closed the month at 6.76% after stubbornly hovering around 7% for several weeks. The current level should bear good news for the real estate market as the industry approaches the spring homebuying season. However, recent sentiment among consumers and the new administration’s tariffs and policies could negatively impact the housing market 2025 season.
As mortgage interest rates and other indices declined during the second half of February, MSR values have held steady which should bring good news to MSR asset holders as the mortgage industry is experiencing some activity in bulk MSR offerings after a relatively slow period during Q4, 2024. MSR market prices remain strong as demand for such assets is very robust. As we analyze February 28, 2025 portfolios, we expect MSR values to remain robust and attractive.
Loan production volume remained weak during the month of February. Purchase loan applications held steady while refinance applications remained relatively weak and continued their downward trend. Overall, mortgage applications were relatively flat in February on a monthly basis. Many potential mortgage borrowers are coming to the realization that current interest rate levels are the new normal. The current SRP prices for new origination have remained strong and aggregators continue to offer premium pricing for new mortgage loans.
The non-QM, HELOC, and second mortgage originations are holding their ground as more borrowers turn to these mortgage loans products. Many lenders have noticed the trend and have entered this space which the mortgage industry anticipates remaining strong throughout 2025.
Mortgage delinquencies continue in their upward trend as borrowers continue to struggle with their rising debt and higher property taxes and insurance. The concern lies in the 90+ days delinquency category as more borrowers fall behind on their mortgage payment obligations. Mortgage prepayments are also rising slightly but remain relatively low.
New Production Value Trends:
Current servicing release premiums (SRP) remain very strong and create a challenging dilemma for lenders on whether to sell their mortgages servicing released or on a servicing retained basis. The SRP prices are very attractive and offer much-needed financial support for many lenders. At the same time, it challenges many lenders that own MSRs in deciding which loans to retain and which loans to release. The math will almost certainly support the option to sell servicing released, however, lenders are realizing the need to retain some of their mortgage production to maintain a robust servicing portfolio and build franchise value.
Current SRP values remain about 10-15 basis points higher than fair values, though, that spread has leveled off since December 2024. We expect the trend to continue for the foreseeable future. We continue to advocate for caution when capitalizing new MSR production at moderate price levels as the market navigates current mortgage rate uncertainties. We will continue to monitor and advise accordingly through our weekly fair value-based MSR grids.
MSR Bulk Market:
Bulk MSR values remain robust and attractive for many buyers and sellers alike. Though Q4, 2024 and January 2025 were low in the number of bulk MSR trades, the MSR market is experiencing increased activity in the number of bulk MSR trades being offered. MCT has two bulk MSR offerings and is working on more offerings in the near future. MCT anticipates demand for MSR portfolios to remain strong as market value remains very competitive due to the low supply, and persistent low production volume dominates the landscape. Recent bulk MSR trading values continue to reflect levels in the 5.0x – 5.50x multiples range of servicing fees for agency loans (depending on the underlying characteristics).
Non-QM and Second Mortgage Trends:
Non-QM and second mortgage origination volume slowed down in January 2025, but production volume picked up again in February, resulting in a good start to 2025. The non-QM and closed-end second mortgage markets are expected to continue to build on their 2024 success story. Investor demand for such products and securitization continues to rise as traditional agency loan products remain low. MCT continues to observe robust origination volume within these two segments, including fair values, depending on portfolio characteristics
The underlying fair values and demand for such products are very competitive: non-QM MSR product fair values are between 3.90 – 4.50x multiple of servicing fees while second mortgages and HELOC MSR product fair values are between 2.30 – 3.25x since more high balance loans are being produced.
Mortgage Rates:
As of February 28, 2025, the current 30 Year base mortgage rate is 6.634%, which represents a decrease of about 23 basis points from January 31, 2025. We anticipate existing portfolio fair values to retreat by approximately 1-4 basis points from January 31, 2025, depending on the underlying portfolio characteristics and vintages.
Escrows and Float Income:
Mortgage escrow values remain robust and should continue to buoy overall MSR values. It is the second largest contributor to the overall MSR value as float income rates remain high. Property values are expected to rise during 2025 by about 4%-5% which could lead to higher monthly tax and insurance payments for borrowers. Though that would be beneficial for MSR values, it increases borrowers’ default risk.
Float income rates have decreased by 21 basis points as many rate indices have declined during the latter part of February. The impact on the values associated with float income rates will be in the range of 1-3 basis points. The current float income rates range between 3.993% - 4.086%.
Rates Indices:
The current Treasury yield curve is reflecting current economic uncertainty as investors sought the safety of Treasury bonds and gold. The new administration’s policies are creating some anxieties among investors as they try to determine what the future may offer.
Prior to the second half of February 2025, the spread between the 30 year primary mortgage rate and the 10 year Treasury rate has been tightening since Q3, 2024 and has been on a downward trend since Q4, 2023. However, the current spread has reversed that trend and now stands at 255 basis points compared to 263 basis points a year ago. The current spread remains higher than the normal average level of about 170 basis points.
Fair Value Guidance:
Our estimate of the fair values for existing portfolios should decrease by 1-4 basis points from their January 31, 2025, marks, due to the decline in mortgage rates and float income rate. The extent of the decline is dependent on portfolio characteristics.
For portfolios that have a mix of Conventional and Government loans, we anticipate Fair Value changes as follows:
- Conventional loans between -1 to -3 bps change from January 31, 2025, marks.
- Government loans between -1 to -4 bps change from January 31, 2025, marks.
If you have any questions or would like to schedule a call with our MSR team, please contact us today.
About MCT:
For over two decades, MCT has been a leading source of innovation for the mortgage secondary market. Melding deep subject matter expertise with a passion for emerging technologies and clients, MCT is the de facto leader in innovative mortgage capital markets technology. From architecting modern best execution loan sales to launching the most successful and advanced marketplace for mortgage-related assets, lenders, investors, and network partners all benefit from MCT’s stewardship. MCT’s technology and know-how continues to revolutionize how mortgage assets are priced, locked, protected, valued, and exchanged – offering clients the tools to thrive under any market condition.
For more information, visit https://mct-trading.com/ or call (619) 543-5111.
Media Contact:
Ian Miller
Chief Marketing Officer
Mortgage Capital Trading
619-618-7855
pr@mctrade.net
