Servicing
Prices Remain Stable
Coming
off of a remarkable month of July for mortgage servicing rights
where market prices increased 50 percent or more for all classes
of MIAC’s GSAs (Generic Servicing Assets), we saw little
change in August. Servicing rights on conventional 30-year
mortgages lost on average almost 7% of their value with the
MIAC Agency 30-Yr index ending the month at a 2.71 multiple.
This is a relatively small change considering the amount of
volatility MSRs have experienced in 2003. Jumbo 30-Yr and
GNMA 30-Yr also experienced declines. They are down 6.6% and
4.5% respectively. 15-year products on the other hand were
up slightly in August with the MIAC Agency 15-Yr index gaining
2.0%. The Jumbo 15-Yr index gained 1.8% and the GNMA 15-Yr
index gained 0.7%.
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. |
| 
|
|
After
the run up in interest rates in July, August 29th rates
were relatively unchanged from July 31st. The 1-Month Libor
rate rose almost 2 bps to end the month at 1.11938%. The
5-Yr swap rate experienced a modest rise of 13 basis points
to end August at 3.935%. The long end of the swap curve
experienced a slight rally with the 10-Yr CMS dropping 4
bps. FNMA and GNMA Current Coupon Yields were slightly down
5 bps and 4 bps respectively in August.
|
|
The
Libor/swap spreads remained relatively stable in August after
the large widening we saw in July. The swap curve remains
at its steepest levels in over a year. Mortgage/Swap spreads
also remained relatively unchanged in August. Given the active
use of swap products to hedge MSR price risk, most hedgers
probably experienced significantly high periodic correlations. |
| MSRs
OASs Slightly Rise |
|
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 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 table displays the quarter-end OASs
from 8/1/2002 to 4/1/2003 and then the month-end OASs though
9/2/2003. These recent dates were selected because the BMA
dealer consensus prepayment speeds are available to assist
in the MSR pricing process.
After the large drop in OASs we saw on MIAC’s GSAs in
July, OASs rose slicghtly in August and are now back at the
levels we saw in the first quarter of 2003. 1-Year into 10-Year
swaption volatilities have steadily declined the last 2 months
to levels not seen in over a year.
|
|
|
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. |
|
In
the table above, the OAS durations or measurements of the
anticipated MSR price sensitivity were computed with a constant
OAS. For the fourth straight month, these benchmark GSA Assets
experienced a shortening of duration. |
|
OAS
Convexities:
For the second month in a row, MSR convexities are near or
below zero for most Generic Servicing Assets. When convexity
is negative, MSR prices will decrease more for a downward
rate shift than they will increase for an upward rate shift.
With MSR convexities heading back into negative territory
and with the recent run up in servicing prices, now might
be the perfect time for holders of mortgage servicing rights
to evaluate their risk profile.
|
|
BMA
Prepay Speeds Rise for High Coupons
The
following tables reflect BMA historical dealer median prepayment
forecasts.
After a large decline in BMA dealer consensus prepayment speeds
in July, August speeds came in at similar levels for low coupon,
out-of-the-money mortgages. Higher coupon mortgages saw moderately
higher prepayment speeds.
On 7/15, the Bond Market Association released a revised
listing of mortgage assets and their prepayment speeds. These
new assets better reflect the current mortgage market. The
assets below without speeds in previous months are some of
these new assets.
|
|
| Red
indicates the highest forecasts on record and orange the second
highest. |
|
|
More
detailed BMA prepayment information can be obtained at www.servicing.com
by viewing the Daily MIMs (Mortgage Industry Medians) data
product. |
| servicing.com Contacts |
|
|
