MSR Monthly Market Update

 
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December 8th, 2003

Servicing Multiples Decline Slightly

Following a down month for Servicing Rights in September, October provided some relief with most asset classes demonstrating significant gains. November multiples were however mostly unchanged, despite BMA dealer consensus prepayment speeds coming in lower and the short term rates that drive escrow and float earnings rising. These factors should lead to MSR price appreciation but the recent surge in MSR price volatility has negatively affected MSR liquidity and pricing.

The Conventional Agency Mortgage Servicing Rights Indexes were unchanged with the 15-Yr Index losing 1% and the 30-Yr Index showing no movement from October end. Both Jumbo Indexes were down 6% in November. The largest losses were experienced by Agency Balloon and GNMA ARM servicing rights. The Balloons lost 13% of their value while the GNMA ARMs were down 14%. GNMA Fixed products experienced slight gains with the GNMA 15-Yr Index gaining 2% and the GNMA 30-Yr index gaining 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.

MSR Product Type Price Indexes:

 

8/1/03

9/2/03

% Periodic Change

10/1/03

% Periodic Change

11/3/03

% Periodic Change

12/1/03

% Periodic Change

Agency 15-Yr

4.01

4.02

0%

3.36

-16%

3.79

13%

3.77

-1%

Agency 30-Yr

4.31

4.06

-6%

2.91

-28%

3.74

29%

3.75

0%

Jumbo 15-Yr

3.71

3.72

0%

3.31

-11%

3.56

8%

3.36

-6%

Jumbo 30-Yr

3.90

3.69

-5%

2.75

-26%

3.39

23%

3.20

-6%

Agency BL

2.13

2.36

11%

2.14

-9%

2.54

19%

2.20

-13%

GNMA 15-Yr

3.69

3.69

0%

3.21

-13%

3.50

9%

3.56

2%

GNMA 30-Yr

4.03

3.83

-5%

2.94

-23%

3.42

16%

3.54

4%

GNMA_ARM

7.41

7.51

1%

5.63

-25%

6.31

12%

5.42

-14%

Price Multiples by GSA Product Type Index

Key Interest Rates:

Market Rates

5/31/02

9/30/02

12/31/02

3/31/03

6/30/03

9/30/03

10/31/03

11/28/03

1 Mth Libor

1.84375

1.81125

1.380

1.300

1.12

1.12

1.12

1.17

5 Yr CMS

4.79

3.23

3.155

3.145

2.7365

3.245

3.676

3.755

10 Yr CMS

5.545

4.25

4.225

4.235

3.855

4.366

4.714

4.705

FNMA 30 CCY

6.21

5.29

5.076

5.009

4.648

5.012

5.335

5.41

GNMA 30 CCY

6.23

5.15

5.015

4.965

4.507

4.985

5.281

5.36
Short term interest rates rose in November with the 1 month LIBOR rate climbing from 1.12 at the end of October to 1.17 at the end of November. The 5-Year swap rate also rose by 8 basis points in November. On the other hand, the 10-Year swap rate slightly declined in November, dropping by 1 basis point. Mortgage rates however managed to climb with the FNMA 30-Yr Current Coupon Yield climbing to 5.41% and the GNMA 30-Yr Current Coupon Yield climbing to 5.36%.

Swap Curve Flattens; Mortgage-Swap Spreads Widen

Market Spreads

5/31/02

9/30/02

12/31/02

3/31/03

6/30/03

9/30/03

10/31/03

11/28/03

5 Yr CMS – 1 Mth Libor

294.6

141.9

177.5

184.5

161.7

212.5

255.6

258.5

10 Yr CMS – 1 Mth Libor

370.1

243.9

284.5

293.5

273.5

324.6

359.4

353.5

FNMA 30 CCY – 10 Yr CMS

62.1

104.0

85.1

77.4

79.3

64.6

62.1

70.5

GNMA 30 CCY – 10 Yr CMS

68.5

90.0

79.0

73.0

65.2

61.9

56.7

65.5

 Recent Key Market Spreads:

MSR OASs Show Mixed and Dramatic Movement.

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 table below is the OASs computed in MIAC Analytics with the actual GSA prices for seventeen of the largest GSAs: Conventional 15-Year 5.0% Issue Year 2001, Conventional 15-Year 5.0% Issue Year 2003, Conventional 15-Year 5.5% Issue Year 2001, Conventional 15-Year 5.5% Issue Year 2003, Conventional 15-Year 6.0% Issue Year 1999, Conventional 15-Year 6.0% Issue Year 2001, Conventional 30-Year 5.0% Issue Year 2003, Conventional 30-Year 5.5% Issue Year 2001, Conventional 30-Year 5.5% Issue Year 2003, Conventional 30-year 6.0% Issue Year 2001, Conventional 30-year 6.0% Issue Year 2003, Conventional 30-Year 6.5% Issue Year 1999, Conventional 30-Year 6.5% Issue Year 2001, GNMA 15-Year 4.5% Issue Year 2003, GNMA 30-Year 5.0% Issue Year 2003, GNMA 30-Year 6.5% Issue Year 1999, and GNMA 30-Year 6.5% Issue Year 2001. The table displays the quarter-end OASs from 8/1/2002 to 10/1/2003 and then the month-end OASs though 12/1/2003. These recent dates were selected because the BMA dealer consensus prepayment speeds are available to assist in the MSR pricing process.

OASs continued to be erratic with some asset classes experiencing rising OAS and others experiencing declining OASs. The OAS of a Conventional 15-Year with a 5.5% pass-through rate and an issue year of 2001 declined by 220 basis points while the OAS of a Conventional 15-Year with a 5.5% pass-through rate and an issue year of 2003 increased by 225 bps. Despite relatively small moves in price, yield curve, annualized yield volatility, and dealer consensus prepayment speeds in November, OASs again demonstrated dramatic changes. Month after month we continue to observe these large swings in OAS. Using a constant OAS methodology is ineffective for measuring the expected price sensitivity of servicing rights.

OASs 

10/1/02

1/2/03

4/1/03

7/1/03

10/1/03

11/3/03

12/1/03

% Periodic Change

GSAs

30.87%

27.51%

26.88%

28.79%

25.61%

26.05

25.35

 

C15_5.0_2001

     

481

734

767

4.5

C15_5.0_2003

408

1236

473

2387

1282

348

574

64.9

C15_5.5_2001

        

714