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Copyright © 2003 by servicing.com |
April
14th, 2004 |
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Servicing Values Take Another Dive After hitting historic lows in mid-2003 and reaching a recent short-term peak at year-end, then holding fairly steady through January 2004, the value of mortgage servicing rights have materially declined again through the end of the first quarter this year. Market prices for most classes of MIAC’s GSAs (Generic Servicing Assets) have continued to erode as a result of another low interest rate environment and prepayment speeds reminiscent of last September. Servicing rights on conventional 30 year mortgages lost on average over 9% of their value from February to March with the MIAC Agency 30-Yr index ending the quarter at a 2.95 multiple. Jumbo 30-Yr also experienced a decline, down 4.4%. Both 15-Year Agency and Jumbo products were relatively unchanged, whereas the GNMA 15-Yr index gained 2.4%. These
MIAC Indexes represents the MSR price behavior of the entire 30-Year
Conventional Agency MSR and 30-Year Jumbo MSR market and particular
components within the marketplace have increased or declined to
a greater or lesser extent. These Indexes do NOT represent multiples
indicative of the value of new production, current coupon servicing
rights. |
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| After the dramatic run up in interest rates in July of 2003, the trend has been generally downward since then, although we have experienced quite a bit of rate volatility over the past several months. The 1 Month Libor rate has fallen 3 bps since December 2003 to end the quarter at 1.09%. The 5-Yr swap rate experienced another monthly decline of 19 bps to end March at 3.165%. The long end of the curve experienced a rally with the 10-Yr CMS dropping 15 bps and the FNMA and GNMA Current Coupon Yields slightly down another 7 bps. |
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Libor swap spreads have continued to tighten throughout the first quarter of 2004, and the Swap curve has flattened. After tightening slightly at the end of February, both FNMA and GNMA Mortgage/Swap spreads have widened again at March-end. |
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MSR OASs Mostly Lower. As we have discussed previously, MIAC Analytics makes available Daily GSA OASs through the Daily GSA pricing service. Each day, MIAC Analytics will use the previous day’s current volatility of 1-Year into 10-Year swaption volatility as a proxy for mortgage volatility. The graph below illustrates the OASs computed in MIAC Analytics from the actual GSA prices for ten of the largest GSAs: Conventional 15-Year 5.0% Issue Year 2001, Conventional 15-Year 5.5% Issue Year 2001, Conventional 15-Year 6.0% Issue Year 1999, Conventional 15-Year 6.0% Issue Year 2001, Conventional 30-Year 5.5% Issue Year 2001, Conventional 30-year 6.0% Issue Year 2001, Conventional 30-Year 6.5% Issue Year 1999, Conventional 30-Year 6.5% Issue Year 2001, GNMA 30-Year 6.5% Issue Year 1999, and GNMA 30-Year 6.5% Issue Year 2001. The graph displays the quarterly OASs from 1/1/2003 to 1/1/2004 and then the month-end OASs though 4/1/2004.
After peaking back in the summer of 2003, the GSA OASs have continued
to trend downward, dropping again in the month of March 2004 except
for a few select Conventional 30-Year asset classes, which ticked
up slightly. |
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Servicing.com
has provided daily IO/PO pricing on a portfolio of Trust IOs for
several years. As a result, we can provide a comparison of historical
Trust IO OASs with the same interest rate model, volatility inputs
and OAS cash flow model as the historical GSA OASs. One can see
from the table above that Trust IO OASs don’t appear to be
well correlated to OAS behavior of the GSAs. This behavior does
not support the use of Trust IO OASs as benchmark OASs for the MSR
marketplace. |
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In
the table above, the OAS durations or measurements of the anticipated
MSR price sensitivity
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OAS Convexities: MSR convexities continue to head further into positive territory for a number of Generic Servicing Assets. When convexity is positive, MSR prices will increase more for an upward rate shift than they will decrease for a downward rate shift. When convexity is negative, MSR prices will decrease more for a downward rate shift than they will increase for an upward rate shift. |
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| BMA
Prepay Speeds Jump Up Again The following tables reflect BMA historical dealer median prepayment forecasts. After a large decline in BMA dealer consensus prepayment speeds from last summer, March 2004 speeds for low-coupon mortgages originated in 2002 and 2003 appeared to rise significantly. Higher coupon mortgages originated prior to 2002 saw moderately higher prepayment speeds but didn’t appear to set any records. On 7/15/2003, the Bond Market Association released a revised listing of mortgage assets and their prepayment speeds to reflect the current mortgage market at the time. These new asset classes do not have historical speeds prior to that date. |
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More detailed BMA prepayment information can be obtained at www.servicing.com by viewing the Daily MIMs (Mortgage Industry Medians) data product. |
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