With the rewards of investing in the residential mortgage servicing rights (MSR) asset come significant accounting and management challenges. Many of those challenges are based on how frequently the asset can change in value and the overall opaqueness of what’s causing the change in value.
Rising values for commercial real estate (CRE) have supported prices for commercial mortgage-backed securities (CMBS) for years. But with increasing talk about a cyclical peak in property values, or even a recession within the next couple of years, CMBS investors as a whole and B-piece investors in particular are starting to think about how they can prepare for the possibility of price declines.
“Strong” is an adjective frequently used to describe the prices paid for residential mortgage servicing rights (MSRs) in recent months. Beyond the glimmer, however, is the reality that only specific slices of overall portfolios are trading very well, and a lot of MSRs out there are not going to market, according to advisory firm MountainView Financial Solutions, a Situs company.
Re-performing loans (RPLs) are defined as loans in which payments had previously ceased for at least three months but have been consistently made for the past 12-24 months. New buyers of RPLs and longtime holders of the assets continue to question how best to quantify the risks associated with loan performance and how that translates into pricing. Both investors continue to evaluate their prepayment, default and loss assumptions in the context of a tightening market over the past 18 months, particularly when portfolios have loans with such varied characteristics and performance history.