Most investors in mortgage servicing rights have already completed their first quarter fair-value analysis. If done according to ASC 820, it reflects the sales (exit) price of this asset as of March 31st. Unfortunately, it may already be time to update it. 

The capital markets have changed dramatically over the last eight days (and continue to do so) with the administration’s implementation of increased tariffs. As can be seen in the chart above, the volatility index (“VIX”) has gone through the roof. There are many implications here that may affect MSR pricing:

• Long-term rates are expected to drop.  In fact, the mortgage rate and the 10-year Treasury have already come done 20+/- basis points.  This should help value as the discount rate should decrease accordingly.  
• Prepay speeds are the most important valuation variable and have the potential of going up as rates drop (negative impact on value). The impact of this, however, may be muted by the following:
• Only 8% of nationwide loans currently have a coupon over 6.5%. These are the ones that are at the greatest risk of refinancing.
• The economic uncertainty that currently prevails may very well dampen the already slowing real estate market. This may mute refinancings.
• Credit issues have been growing ever so slowly. Given the economic upheavals, that may accelerate. Many first-quarter GDP projections expect negative growth, and warnings of stagflation loom.  Additionally, unemployment has been inching up, and consumer sentiment is down. Credit issues may likely grow in areas of high government employment and high LTV loans. 

Financial models work within fairly narrow bands of reality. Once outside of those bands, their predictive capabilities diminish rapidly. We are stepping outside of the bandwidth for current macroeconomic models.

Given the uncertainties that abound, it may be prudent to run an April 30th valuation. Such an exercise would, at best, allow for defensive measures to be taken and, at worst, to gird MSR managers for a potential write-down or impairment.

In times of economic uncertainty, waiting to reassess your portfolio can mean missing critical shifts in market dynamics. With significant changes already unfolding since Q1, now is the time to ensure your valuations reflect today’s conditions—not last quarter’s. An April valuation with Level1Analytics offers the clarity and confidence you need to make proactive, data-driven decisions in a volatile environment.

Get ahead of market shifts—schedule your April valuation with our experts today.