Periodic validations of MSR valuation models can create an advantage

While depository institutions are required to have their residential mortgage servicing rights (MSR) valuation models validated, other businesses don’t face the same regulatory requirements and are potentially missing out on the benefits of periodic validations.

That’s the opinion of Raymond Wong, a vice president of analytics on the model validation team at MountainView Financial Solutions, a Situs company. Wong specializes in validations of MSR valuation models and mortgage pipeline models. He is a guest presenter in MountainView’s MSR Asset Monthly Snapshot webinar on November 6.

“The ultimate benefit of this exercise is that decision makers, who may not be direct model users, can move forward with the confidence that there is modeling integrity,” said Wong. “Decision makers will know whether their modeling process is in line with fair value assumptions, and they are also kept informed on the weaknesses of their assumptions.”

MountainView’s recurring webinars discuss interest rates, MSR risk management, MSR pricing levels and MSR market activity for the most recent month. The webinar is attended by the full spectrum of MSR market participants, including professionals at some of the largest holders of the MSR asset.

In his portion of the webinar, Wong will share brief case studies that highlight the benefits MSR valuation model users and their business unit decision makers received from the information MountainView discovered in recent validation projects. The examples will show material departures from both ordinary and best practices and the potential impact on MSR modeling.

“There is a danger when modeling integrity is taken for granted,” said Wong. “That can easily happen over time, all while portfolio composition and risk factors are changing. Accurate modeling on an ongoing basis can then come down to the devil being in the details, and periodic reviews – not just one and done – can provide ongoing confidence.”

Wong will also briefly discuss the importance of procedural documentation and data for regulatory-type audits of model use.

If your organization is a holder of the MSR asset, register now for this webinar and be added to the invitation list for MountainView’s MSR Asset Monthly Snapshot webinar series. If you cannot attend the Nov. 6 webinar because of a calendar conflict, register anyway and you’ll receive the slides and recording after the webinar.