Residential: 11 key data sources for determining and benchmarking MSR values

11 key data sources for determining and benchmarking MSR values

What’s the best way to find supporting information about the residential mortgage servicing rights (MSR) asset? The asset trades in a fairly difficult marketplace and has always suffered somewhat from being opaque.

Knowing this, MountainView Financial Solutions, a Situs company, developed a list of 11 data points that support and benchmark MSR assumptions and values. The list – which MountainView uses in its independent valuation for clients – was presented on Sept. 10 during the firm’s MSR Asset Monthly Snapshot webinar.

“There’s been a greater emphasis from both regulators and auditors to make sure that people are sufficiently back-testing their portfolios and making sure that values are right, so this seemed like a timely topic,” said Mark Garland, managing director of analytics and head of MSR valuation at MountainView.

The initial data source discussed was servicing market activity. “We often get accounts that will say, ‘This is the only thing that matters – we should always be looking at market color, so forget about all of those other data points,’” according to Garland. He said they also frequently hear clients ask why fair value is different from market value.

Garland added that MountainView’s valuation, risk and transaction advisory teams all agree that market color is hugely relevant but not the only or most important data point.

“What we find is that it can’t trump all of the other data points – for several reasons, not the least of which is that it can be difficult to carry those market trades into your specific portfolio,” he said.

The second data source Garland went over in detail is the past performance of a MSR holder’s portfolio. This is a matter of reporting on and knowing exactly what your portfolio is doing.

“We’re always surprised. … Some clients have this at their fingertips and some don’t track this particularly well,” said Garland.

Every time MountainView takes a MSR portfolio to market, according to Garland, some of the first questions that potential buyers ask are about past performance: historical prepayment speeds, how delinquencies have been tracked, the history of advance balances, ancillary and late-charge income, and retention/recapture rates for refinances.

Garland highlighted three critical areas of MSR portfolio performance: data points buyers are most interested in, data points that have more internal significance, and the relationship of how a portfolio is performing against the rest of the industry.

Regarding the remainder of the list of 11 data points that support and benchmark MSR assumptions and values, Garland emphasized that the majority of data is very easy to collect. The full list is available within the webinar recording.

Additional special topics in this month’s webinar were the importance of credit score adjustments within MSR valuation models and a comparison of how two origination years – 2017 vs. 2016 – are showing significantly different prepayment speeds.

How Ginnie Mae could break stalemate on GSE reform

Housing finance reform is still likely years away, but two major hurdles may already be cleared.

A key sticking point in earlier attempts to overhaul the system was whether it will still have government backing. A related question also creeping up at times: What agency will be the source of that backing?

The latest reform proposal, spearheaded by House Financial Services Committee Chairman Jeb Hensarling, appears to provide answers to both: There will be backing, and it will likely reside with Ginnie Mae or an agency resembling it.

Hensarling’s plan, co-authored by House Democrats John Delaney and Jim Himes, completes a circle. In contrast to the Texas Republican’s 2013 housing finance bill, which took the government out of the equation, now the plans on the table — including Hensarling’s — all largely position an agency such as Ginnie as the government’s guarantor of mortgage assets.

Read more: American Banker

Investors finally embrace big single-family rental companies a decade after the financial crisis

A decade ago, when the US housing market collapsed and millions of homes went into foreclosure, a new class of real estate investors was born. Large-scale, institutional firms began buying up tens of thousands of properties. They rehabbed them and put them up for rent.

Some said it was a short-term play; they’d sell the homes once property values recovered. And some did, but a decade later the firms that made the biggest bets are not only still in play, but expanding, and continuing to reap the rewards of a new rental boom.

At the start, there were several players. Names like American Residential Properties, Colony American Homes, Starwood, Waypoint and Silver Bay. Now, after mass consolidation in the last few years, only the last two remain: American Homes 4 Rent and Invitation Homes. They are single-family rental REITs, and, along with Canada’s Tricon Capital, which bought Silver Bay, they own and operate about 200,000 single-family rental homes across the nation.

“The single-family rental market is very healthy right now. The demand versus supply balance and the operating outlook for revenue growth over these coming years is more favorable versus most property types,” said John Pawlowski, an analyst at Green Street Advisors. “The operating backdrop for them is quite sound, and they’re better at what they do today versus the early days of this sector, they’re better operators, they have more refined systems.”

Read more: CNBC

Hurricane Florence a reminder of flood insurance reforms stalled in Congress

US taxpayers who spent billions of dollars after a trifecta of hurricanes last year are poised to do so again after a fix to the nation’s troubled flood insurance program remains stalled in Congress — and as a dangerous new storm barrelled into the southern Atlantic coast.

The program, administered through the Federal Emergency Management Agency, is the primary source of flood insurance in the US, with about 5 million policy holders across the country. But it remains more than $20 billion in debt and some experts say it must be reformed in an era of very powerful storms like Harvey and Irma.

“They have not dealt with the gorilla in the room, which is proactively addressing these types of disasters for the future,” said Rob Moore, a senior policy analyst at the Natural Resources Defense Council. “Too much of the US’s response to natural disaster is completely reactionary; we throw a bunch of money after it happens.”

Read more: Insurance Journal

We’re good here: Boomers are staying put instead of downsizing

Baby Boomers are not ready to let go. The approximately 70 million Americans between 54 and 73 years old are not downsizing into smaller homes – even though Boomers living in empty nests have an average of two extra bedrooms. In 2005, more senior households were moving into multifamily than single-family housing by age 75. In 2016, this inflection point didn’t happen until age 80. In a nation with a very tight housing inventory, that might cause more than a few Millennials and Gen Xers to start asking their parents, “Whyyyyyyy?”

Baby Boomers have been breaking the generational mold since the Free Love era. Today, they’re working longer as seniors. The proportion of household heads age 65 and over who are still in the labor force rose to 19.3 percent in 2016 from 15.9 percent in 2005.

Boomers’ households function a little differently in another way, too. The children of Boomers have delayed moving out of their parents’ homes. In 2016, 16.1 percent of senior households had younger generations living with them, compared to 14.4 percent in 2005. As retirement and the kids moving out are often triggers for downsizing, it’s no wonder Boomers are sticking with their old digs – many still need them.

Many places across the US are short on housing inventory, and affordability isn’t going in the right direction either. It might be easy to look at Baby Boomers hanging on to their homes and point the finger at them. After all, if they’re not moving into smaller homes, the cause of the bottleneck seems obvious. But we found that in places where housing inventory is most needed – which are also the most unaffordable metros in the nation – seniors are renting, just like the rest of us.

Read more: Trulia

Home flipping in U.S. dips to 4-year low

According to ATTOM Data Solutions’ recently released Q2 2018 US Home Flipping Report, homes flipped in the second quarter of 2018 yielded an average gross return on investment of 44.3 percent, down from 47.8 percent in the previous quarter and down from 50.0 percent in Q2 2017 to the lowest average gross flipping ROI since Q3 2014.

The report shows a total of 48,768 US single family homes and condos were flipped in the second quarter of 2018, a home flipping rate of 5.2 percent of all sales – down from a 6.6 percent home flipping rate in Q1 2018 and down from a 5.4 percent home flipping rate in Q2 2017.

Homes flipped in Q2 2018 sold for an average of $65,520 more than what the home flipper purchased them for, down from an all-time high average gross flipping profit of $69,500 in the first quarter and down from an average gross flipping profit of $69,000 a year ago. The average gross flipping profit in the second quarter was the lowest since Q2 2016 – a two-year low.

Read more: World Property Journal

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