Mortgage Loans and Mortgage Servicing rights neither appear nor disappear. Short of a house burning down and the land being converted to a park, mortgages do not vanish --- they simply move. They move from lender to lender and/or from one borrower to another. Essentially, every prepay is someone’s origination --- either yours or a competitor’s. While new volume can be added to the system through new construction and inflation of the value of the existing housing stock, it is clear from the provided graph that that is not happening today. Most originations today are refinances.

Origination and servicing projections within a mortgage banking company, therefore, can be improved by examining metrics of actual portfolio performance. This needs to go well beyond prepay percentages to the establishment of metrics that measure retention, recapture, and replenishment. What is needed is a better understanding of the firm’s ability to do the following:

• Retain loans in the servicing retained portfolio that have a high propensity to prepay (“PtP”) through aggressively promoting 2nds and HELOCs.  Thus, allowing mortgagors to monetize their equity without requiring a refinance.
• Recapture loans that are being refinanced out of the:
• servicing retained portfolio through direct outreach of high “PtP” borrower. This presents an additional economic reason to retain servicing.  This “recapture % metric” should be a fairly high number and should be reviewed monthly.
• servicing released portfolio. This number is usually fairly low due to contract restraints, lack of dialogue with the borrowers, and an inability to “see” when the PtP rises. But with proper data retention on the origination side of the business, it should be quantifiable.
• Replenish loans in the servicing portfolio through the acquisition of new purchase-money mortgages.

Understanding which loans have a high propensity to prepay is crucial for optimizing your origination strategy and servicing portfolio. With data-driven insights, your team can focus on the right opportunities—maximizing efficiency and profitability.

Let’s take the guesswork out of prepayment analysis. Contact us today to gain loan-level Propensity to Prepay (“PtP”) insights and make more informed decisions with confidence.