MCT Whitepaper: What is MSR Valuation? Mortgage Servicing Rights 101
Unlock Mortgage Servicing Rights (MSRs) basics and portfolio valuation drivers with this in-depth MSR 101 whitepaper. Discover how MSRs can drive cash flows, enhance franchise value, and provide flexibility to navigate market fluctuations.
Learn about key strategies for managing MSR risks, leveraging their liquidity, and adopting best practices for accounting and valuations to explore how MSRs can help your business thrive in today’s dynamic mortgage market.
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Secondary marketing professionals may also be interested in reading Getting Started with Agency Approvals to understand the necessary steps to get approved with GSEs and begin retaining MSRs.
About the Whitepaper:
This whitepaper is written by a team of MSR experts, including Bill Shirreffs, Azad Rafat, Natalie Martinez, and David Burruss, who bring decades of experience in mortgage servicing rights management. Together, they offer key insights on optimizing MSR strategies for your business.
Topics Include:
- Introduction to Mortgage Servicing Rights (MSRs): Learn what mortgage servicing rights are and their role in the secondary mortgage market.
- Advantages and Disadvantages of MSR Ownership: Explore the benefits, such as immediate positive cash flows, and challenges, including regulatory compliance and resource demands.
- Accounting Approaches for MSRs: Understand the two primary accounting methods—Lower of Cost or Market (LOCOM) and Fair Value—and when to apply them.
- MSR Valuations: Discover the key drivers behind MSR valuations and how they impact profitability and compliance.
- Strategies for Achieving Pricing and Value Continuity: Insights into stabilizing MSR portfolios and maintaining long-term value amid market volatility.
Download our whitepaper today to learn more about mortgage pipeline hedging!
Whitepaper Author:
Bill Shirreffs - Head of MSR Services & Sales Operations
Mr. Shirreffs brings extensive industry experience in capital markets, structured transactions, credit risk, mortgage insurance, strategic planning and sales leadership to MCT. Prior to MCT, Shirreffs gained broad secondary experience with both Fannie/Freddie (17 years), where he ultimately became Vice President, responsible for oversight of the West Region for both organizations. Due to his deep experience on Fannie’s Cash Window, Bill was tasked with becoming one of the principal architects of Fannie Mae’s “Live Pricing”, the Industry’s first electronic whole loan committing platform.
Shirreffs also spent 13 years in the mortgage insurance industry, where as Head of National Accounts he helped PMI MIC grow into one of the Industry’s leading providers in the 2000s.
Mr. Shirreffs is MCT’s Head of MSR Services & Sales Operations, responsible for overseeing all operational aspects of the sales organization and other related functions, including contract management, sales leadership, strategic planning, process improvement, and sales reporting.
Azad Rafat - Senior Director, MSR Services
Mr. Rafat is a highly experienced senior manager with more than 30 years of experience in the mortgage industry. He has over 20 years extensive experience in all aspects of mortgage servicing rights valuations, analytics, and risk management of small to some of the largest servicing portfolios. He also spent about 10 years in mortgage servicing acquisitions and sales operations, managing mortgage servicing platforms, and mortgage servicing operations and finance.
Mr. Rafat’s hands-on experience designing, building and managing servicing analytics solutions and products for the mortgage industry is particularly helpful for MCT clients who look for expertise managing their servicing portfolio. Mr. Rafat is MCT’s Senior Director of MSR Services and is responsible for ensuring MSR clients are successful in achieving their goals.
Mr. Rafat holds an MBA from University of North Florida and two Bachelor of Science degrees in Mathematics and Industrial management from Morehead State University.
Natalie Martinez - Senior Manager, MSR Services & Client Success
Natalie joined MCT in 2015 starting in the Lock Desk Division and eventually becoming a Senior Lock Desk Analyst overseeing 11 Lock Desk clients and 5 analysts, before transitioning to the MSR Division in 2017. Within a few short years, she moved into her current position as the Manager of the MSR Services Department & Client Success where she manages MCT’s MSR Analysts, oversees portfolio valuations, and is an integral part in updating and refining the MSR Department’s flagship model MSRlive!, revising the prepayment model, and making structural changes to enhance the user’s experience.
Ms. Martinez is now the most senior MSR Analyst at MCT. She focuses on the success of every MSR client from assisting them in managing their MSR asset through MSRlive!, to meeting one-on-one and hosting client webinars to provide insight on current market conditions and clarity on current MSR updates. She always strives to give 100% to each client she helps.
Mrs. Martinez holds a Bachelor of Science degree in Mathematics from the University of California, Irvine.
David Burruss - MSR Sales Director
Mr. Burruss is a 30-year mortgage industry veteran. As Director of MSR Sales, David is responsible for marketing outreach and acquisition of new customers.
Previously Mr. Burruss worked in the subservicing and MSR world uncovering private label clients and those who wanted to sell MSR. He ran his own consulting firm offering a broad range of services like business/product development, investor relations, recruiting and outsourcing.
Mr. Burruss also has a rich legacy in the national accounts arena servicing many of the top 20 US Lenders for PMI Mortgage Insurance Company, Arch MI, and Freddie Mac. In this role, he has covered the entire mortgage manufacturing process from origination through foreclosure; creating products and services focused on generating efficiencies and uncovering profitable niches for his customers. He also lead teams who developed some of the first automated underwriting processes in the industry.
Mr. Burruss holds a bachelor’s degree from Carson-Newman University and is recognized as an AMP through the MBA.
Featured Whitepaper Excerpts:
What Are Mortgage Servicing Rights?
Mortgage Servicing Rights are simply the right to service a mortgage, including but not limited to collecting payments, customer service, and loss mitigation. MSRs have value (and liability) distinct from the mortgage itself, and retaining an MSR portfolio is considered a key growth step for most mortgage lenders. MSRs are created when loans are sold into the secondary market. At that point, servicing assets become a distinct asset separated from the whole loan.
Importance of Optionality in MSR Management
Optionality is essential to achieve long-term success in secondary marketing. For servicing, that would include obtaining approval from the Government-Sponsored Enterprises (GSEs - Fannie Mae and Freddie Mac). Their approval is required for entities that are interested in retaining servicing, which allows flexibility in retaining or releasing based on what’s happening with the market.
MSRs as a Natural Cross-Hedge
Retaining servicing hedges against rising interest rates and reduced production revenue. As production declines, MSR values tend to increase, creating a natural cross-hedge on the balance sheet.
Liquidity and Flexibility of MSRs
MSRs are a relatively liquid asset that can be bought, sold, or financed with GSE approval, providing businesses with the ability to retain or release depending on strategic objectives.
