Mortgage servicing rights (MSRs) are contractual agreements where the original mortgage lender sells the right to service an existing mortgage to another party specializing in managing mortgage-related tasks.

In the past, mortgage loan and MSR valuations were largely taken at face value, with analysts’ assessments rarely questioned. However, heightened scrutiny from examiners, auditors, and new FASB regulations has changed the landscape.

MSR Valuation Models & Software

Uncertainties in mortgage-related asset valuations stem from borrower behaviors like prepayment and default risks, as well as unpredictable capital markets. Analysts must also determine appropriate discount rates for cash flow projections, ensuring transparency through thorough documentation and disclosure. Fortunately, choosing the right MSR  model and software can help streamline and enhance the valuation process.

What to Look for in MSR Valuation Software

When conducting your MSR Valuations, it’s crucial to use a data-driven model that provides precise and defensible outputs. Refrain from using models that are unreliable and inaccurate Option-Adjusted Spread (OAS). Here are the key features of a precise and reliable MSR Model:

Automation & Efficiency

The software should streamline data integration, modeling, and reporting to reduce manual errors and improve speed.

Integration with Market Data

Real-time access to interest rates, economic indicators, and loan performance data enhances accuracy.

Customizable & Scalable Solutions

Whether for a small servicer or a large institution, the software should scale with business needs and allow for tailored modeling approaches.

User-Friendly Interface

An intuitive design and robust support features make it easier for analysts to run valuations and interpret results.

Cloud-Based & Secure

Cloud-based solutions provide flexibility, collaboration, and enhanced security for sensitive financial data.

Choosing the Right MSR Software

Choosing the right MSR valuation model and software is a strategic decision that affects accuracy, compliance, and profitability. By prioritizing advanced modeling capabilities, automation, and regulatory transparency, servicers and investors can confidently assess MSR values in an evolving market. Interested in learning more about the Level1Analytics model? Drop us a line at info@level1analytics.com!