Join our newsletter to receive every MSR update!
All eyes are on the Fed upcoming meeting this month in anticipation of the highly anticipated rate reduction announcement. The Federal Open Market Committee (FOMC) is expected to reduce the federal funds rate by 25 basis points in September 2025. This will mark the first rate cut in 2025, and the reduction is expected to bring the target range down to 4.00%-4.25%.
Recent downward revisions of the jobs numbers and August’s jobs numbers have increased the level of general pessimism about the health of the economy. Consumer spending and residential and nonresidential investments were relatively flat during the second quarter, which suggests that demand for products and services slowed during the first half of the year. Tariffs continue to impact GDP numbers as imports declined during the second quarter compared to an increase in imports during the first quarter of this year.
Consumer negative consensus about the economy and higher mortgage rates have led to contraction in housing activity for the second consecutive quarter. Delinquencies continue to rise, reflecting the impact of higher mortgage rates and escrow payments on borrowers’ ability to remain current on their mortgage payments.
Current average home insurance premiums are at their highest levels and are expected to continue to rise by another 11% over the next twelve-month period. One component of the Producer Price Index (PPI) is homeowner insurance premiums. This component of the PPI can serve as a gauge of inflation in the insurance sector. PPI for homeowners’ insurance has increased 27.70% since 2018, home price appreciation is slowing nationally, with the latest data showing the weakest annualized gains since 2023. The Home Price Index (HPI) increased by 2.93% from Q2 2024 to Q2 2025. However, regional home price appreciation varies from state to state as some states show rising home prices while others like in Florida, are showing price declines.
Mortgage rates have stayed relatively high this year, and it is difficult to predict the exact path forward due to economic uncertainty. We anticipate the 30-year fixed rate to stay in the low to mid 6% range throughout 2025.
The housing market is confronting continued challenges facing home buyers and sellers as both new and existing home sales decline persists. Economic uncertainty and affordability issues due to high prices and relatively high interest rates weighed on home sales and new construction.
New Production Value Trends:
Though mortgage rates have declined sharply since late August, many potential buyers are opting to wait on the sideline hoping for better future opportunities.
August’s production levels reflect a moderate increase over the prior month. Refinancing activities declined in August but looks promising for a potential increase in activity in the near term, especially with current mortgage rates between 6.25% and 6.50%.
Current servicing release premiums (SRP) remain relatively strong as major aggregators are offering record SRP prices, including FHA production. This is purely driven by supply and demand dynamics as low production volume persists.
The current average SRP levels remain at about 15-25 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 on a servicing release basis. We also continue to advocate for caution when capitalizing new MSR production at moderate price levels as current SRP levels reflect the aggregator’s economies of scale rather than actual fair value.
Bulk MSR Market
Bulk MSR offerings slowed down during the month of August as yield curve volatility and economic uncertainty led many sellers to wait and review their options and look for more clarity from the Fed and other economic news.
Brokered MSR trades were low, however, direct transactions between sellers and buyers remain somewhat robust, and we expect that trend to continue throughout 2025.
Recent bulk MSR trades for moderately seasoned portfolios with interest rates below 5.00% have ranged between 135 to 140 basis points (5.40 – 5.60 multiple of servicing fees). Fairly new production portfolios with an average interest rate of 6.50% - 6.75% were also traded at relatively high prices. One particular portfolio was traded in August for about 4.90 X multiple of servicing fees.
Demand for bulk MSR portfolios should remain relatively robust once the market participants digest the mixed economic news and figure out a path forward.
Non-QM and Second Mortgages Trends
Non-QM production continues to increase month over month as more investors seek opportunities within this mortgage segment. Liquidity and the demand for this asset type are leading to a tightening of the spread in interest rates between Non-QM and Agency products.
The interest in non-QM is beyond depository institutions and has extended beyond traditional financial institutions. Naturally, expected yields and returns on investment of non-QM products are higher than conforming agency loans.
Delinquencies, just as in conforming loans, are slowly rising, particularly within higher interest rate ranges. Additionally, August prepayments rose slightly over July levels as some borrowers opted to take advantage of declining mortgage rates.
HELOCs and closed end second mortgage lenders continue to experience robust production during the month of August. Market participants should expect continuous growth within this segment throughout the remainder of 2025.
The bulk MSR market for these two segments remains low. Underlying fair values for non-QM MSR products remain between 3.65 – 4.40 multiple of servicing fees while Second Mortgages and HELOC MSR products fair values are between 2.30x and 3.25x multiples of servicing fees.
Mortgages Servicing Performance
Mortgage servicing performance remains stable and under control. However, it’s important to note that FHA and VA loan delinquencies are rising at a faster rate than Agency loans. This is due to generally higher loan balances and higher interest rates.
Existing mortgage borrowers are confronted with continuous and rising property taxes and hazard insurance premiums; Current monthly escrow payments amount to about 30 percent of the total borrowers’ mortgage payment compared to about 15 percent in 2022. This is double the amount of escrow payments since 2022, and in some states, it is even higher than that.
Debt to Income ratios remain elevated and should continue to rise as borrower’s total debt increases month over month.
Mortgage prepayments have been rising steadily since Q4, 2024. Most of the prepayments are concentrated within vintages prior to 2024. However, including the scheduled and unscheduled principal payments to the voluntary prepayments, servicers are experiencing much higher runoff rates that is impacting servicing fee income.
Current voluntary prepayment speed remains in the high single digits; however, we anticipate that prepayment levels will increase to double digits if mortgage rates actually decline below 6.50%. Similar to what the industry experienced towards the end of Q3, 2024 when mortgage rates were around 6.375% for a brief period of time.
Mortgage Rates
As of August 31, 2025, the current fixed 30 Year mortgage rate is 6.543%, which represents about 19 basis points decline from July 31, 2025, mark.
Escrows and Float Income
Mortgage escrow values have declined since their July 31, 2025 marks due to the sharp decline in float income rates, which declined by an average of 30 basis points during the month of August 2025. This decrease in float income rates led to the deterioration of the overall value of MSR portfolios. Escrow’s value is the second largest contributor to the overall MSR value.
Rates Indices
Current mortgage rates reflected mixed economic news and uncertainty during the month of August 2025, closing the month at a lower rate than their July 31, 2025, marks. Mortgage rates have decrease by an average of 19 basis points since July 31, 2025.
The current Treasury yield Curve continues to reflect some economic distress and future economic uncertainties.
The yield on the benchmark 10-year Treasury is at 4.23%, 15 basis points lower than prior month. The current yield curve is steeper as lower end of the curve which dropped while the long end of the curve remained high, reflecting investor’s continued demand for higher yields due to the current economic uncertainty.
The current spread between the 2 Yr Treasury rate and the 10 Yr Treasury rate is on a trajectory that is similar to the period immediately after the pandemic, which could mean more economic challenges lie ahead.
Fair Value Guidance
Our August 31, 2025, fair values guidance for existing portfolios should decrease from their July 31, 2025, marks. Changes in MSR values will be dependent on the percentage of escrowed loans and the amount of monthly escrow payments that are collected due to the significant decrease in float income rates. The decrease in mortgage rates will increase the prepayment forecast, which will have a negative overall impact on fair values.
MSR holders should expect a decrease in fair values ranging from two (2) to four (5) basis points, primarily because of the decrease 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 July 31, 2025, marks.
- Government loans between -2 to -5 bps change from July 31, 2025, marks.
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
