Assessing Involuntary Termination Risk on Residential Mortgage Servicing Rights

Abstract

This research paper outlines some of the issues facing investors in mortgage servicing rights (MSRs) and/or creditors holding security interests against these intangible assets or the underlying collateral. These issues include swings in the valuation of the MSR, repayments of loans in the underlying portfolio that may cause the MSR to decay more rapidly, and most important, the possibility of an involuntary transfer of the MSR that causes the investor and/or secured creditor a total loss. The paper concludes by suggesting some of the key quantitative and qualitative indicators which investors and regulators should assess to avoid situations where involuntary servicing termination may occur.

Keywords: Residential Mortgage, Morgage Servicing Rights, MSR, Fannie Mae, Freddie Mac, Ginnie Mae, Federal Housing Finance Authority, Federal Housing Adminsitration, Taylor Bean Whittaker, FDIC, Involuntary Transfer, Termination

JEL Classification: G00, G20, G23, G32, G33, G38, K2, K23, M2, M48, N2