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Mortgage rates and most other rate indices have risen during the month of May. MCT’s mortgage rates model reflected an increase in rates of about 15 basis points, on average. MCT’s current primary 30-year fixed rate closed the month at 6.87%. Float income rates also increased during the month of May by about 20-30 basis points. Current mortgage rate levels reflect uncertainties within the macro-economic environment as recession fears are more relevant than Q1, 2025.
MSR values remained strong during the month of May. MCT bulk MSR trades revealed a slight improvement in prices over March figures, driven by continued strong demand for MSR. Many buyers have shrugged off mortgage rates volatility and economic uncertainties to acquire MSRs. The primary reason for this trend is the persistent low mortgage production volume that persists.
Loan production volume remained relatively weak during the month of May as mortgage rates reached highs close to 7.00% during this period. MCT observed a drop in mortgage applications during the month of May.
The housing market is under pressure as there are more sellers than buyers. According to Redfin, currently there are about 490k more sellers than buyers. Basically, there are 33.70% more buyers than sellers which the housing market has never seen since 2013.
MCT continues to observe a slow upward trend in mortgage delinquencies as more borrowers are falling behind on their mortgage payments. We anticipate this upward trend to continue at the current pace during Q2 and Q3, 2025.
New Production Value Trends:
Although Q1, 2025 production volume was higher compared to the previous year by 13.50% for government loans and 1.10% for conventional loans, May’s production levels have declined because of the rising mortgage interest rates during the month of May.
Borrowers continue to struggle with home price affordability issues due to higher rates and record high home prices, plus actions by the administration have increased general uncertainty. Both issues have kept home ownership out of reach for many potential borrowers.
Recent servicing release premiums (SRP) remain very strong due to low new loan production volume. The SRP prices remain very attractive and offer much-needed relief for many lenders. The average SRP price is about 12-15 basis points higher than the average fair value. Many lenders with servicing portfolios are faced with tough choices related to retaining some of their loan production or selling their loan production on a servicing release basis. We continue to advocate for caution when capitalizing new MSR production at moderate price levels as the market navigates current mortgage rates uncertainties.
Bulk MSR Market
The Bulk MSR activity has been robust during the month of May. Rising mortgage rates and other rate indices have led to higher price offerings for bulk MSR packages. MCT observed an increase of about 4-8 basis points in prices offered over April’s bulk offerings activity.
Bulk MSR trades ranged between 134 to 142 basis points (5.36 – 5.68 multiple of servicing fees). The constantly low mortgage production volume has led to continued strong demand for bulk MSR portfolios and, in turn, higher prices.
MCT anticipates bulk MSR trading activity to be a bit more moderate during the months of June and through September of 2025.
Non-QM and Second Mortgages Trends
Investors’ demand for non-QM and second mortgage originations continues their dominance in term production volume. The non-QM production rose by 45.70% from a year ago to 67.0 billion during Q1, 2025.
Delinquencies, just as in conforming loans, are slowly rising, particularly within higher interest rate ranges. Prepayments, on the other hand, have been muted due to current high mortgage rates.
The bulk MSR market for these two segments remains low, except for some direct transactions between buyers and sellers. Underlying fair values for non-QM MSR products remain between 3.70 – 4.30 multiple of servicing fees while Second Mortgages and HELOC MSR products fair values are between 2.30x and 3.25x multiples of servicing fees.
Mortgage Rates
As of April 30, 2025, the current fixed 30 Year mortgage rate is 6.7292%, which represents about two (2) basis points increase from March 31, 2025, mark.
Escrows and Float Income
Mortgage escrow values recovered sharply during the month of May as float income rates rose sharply during the month of May by about 15 to 18 basis points. This increase in float income rates has erased all of the declines the market has experienced during the month of April. The value of Escrows is the second largest contributor to the overall MSR value; therefore, one should anticipate an increase in value of about one to two basis points driven by a rise in float income rates.
Rates Indices
The current Treasury yield Curve continues to reflect some economic distress and future economic uncertainties. The new administration’s policies are creating some anxieties among investors as they try to determine what lies ahead.
Almost all of the rate indices have improved month after month, particularly the long-term indices with the 30-year Treasury rate inching closer to 5.00%.
The current spread between the 2 Yr Treasury rate and the 10 Yr Treasury rate is on a trajectory that is similar to the time immediately after the pandemic, which could mean some economic challenges are ahead.
Fair Value Guidance
Our estimate of the fair values is that existing portfolios should remain relatively stable and somewhat higher than their April 30, 2025, marks. Changes in MSR values will be dependent on the percentage of escrowed loans in addition to the amount of monthly escrow payments that are collected due to the significant increase in float income rates. The increase in mortgage rates will reduce the prepayment forecast which will also have a positive impact on fair values.
MSR holders should expect an increase in fair values ranging from 1 to 4 basis points, primarily because of the rise in mortgage and float income rates.
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 April 30, 2025, marks.
- Government loans between +1 to +4 bps change from April 30, 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
