The Future of MSRs

Mortgage servicing rights are one of the most complex assets in the market, and one of the most misunderstood.

What does it actually take to value and trade MSRs at scale?

In Episode 10 of The AiCR Exchange, Joe Furlong sits down with Mike Carnes, who heads the MSR team at MIAC Analytics. Mike has been valuing mortgage servicing rights for 33 years. He walks through how MIAC approaches MSR valuation, what drives pricing, how rate environments affect value, and what a pending FASB change means for the industry.

What is a mortgage servicing right and what does MIAC’s MSR team do?

A mortgage servicing right is the contractual right to collect payments and service a mortgage loan in exchange for a fee. MIAC’s MSR team values those rights and brokers transactions on behalf of buyers and sellers. The team handles both residential and commercial MSR portfolios. Last year MIAC valued approximately 48 trillion dollars in residential MSRs and 4.6 trillion in commercial MSRs on a quarterly basis, totaling over 52 trillion annually. MIAC also has a quarterly assignment to value every single mortgage servicing right in the United States. That volume of activity provides direct market visibility that informs every valuation the team produces.

How does MIAC approach MSR valuation?

MIAC values most portfolios at the loan level rather than in aggregate, which captures the uniqueness of each individual asset within the portfolio. The team uses MIAC’s proprietary behavioral model called CORE, which draws on national loan performance data to inform prepayment, default, and severity assumptions. Mike Carnes describes the foundation of MIAC’s approach as a trifecta: national data coverage across all collateral, strong behavioral models, and 33 years of experience in the asset class. Jennifer Howell co-heads the MSR valuation team with Mike and brings 25 years of experience, giving the two senior leaders over 50 combined years in this specific asset. MIAC will not put out a value it cannot defend. If retaining a client would require compromising the integrity of a valuation, MIAC will accept losing the client.

What drives MSR pricing and who are the buyers?

MSR pricing depends on deal size, collateral type, rate environment, and the strategic goals of the buyer. Deals in the range of 1 to 3 billion dollars are considered average size today. MIAC does not consider a deal large until it exceeds 5 to 7 billion. Different buyers are attracted to different deal sizes: some can only look at deals under 200 million, while others require scale and will not engage with anything under a billion. Buyers also vary by strategy. Some firms prioritize higher note rate collateral for its recapture potential, valuing the ability to refinance those borrowers multiple times. Others prefer the stability of lower note rate portfolios where borrowers are unlikely to prepay for years. For depositories, acquiring an MSR portfolio can be one of the most economical ways to add new customers and cross-sell checking accounts, credit cards, and other products across a long-duration servicing relationship.

How do interest rate changes affect MSR value?

Mortgage servicing rights have a natural hedge relationship with interest rates. When rates rise, prepayment risk falls and float earnings increase, which pushes MSR values up. When rates fall, prepayments accelerate and values decline. The hedge is not perfect. When rates rise sharply, new origination volume drops because fewer borrowers can afford to buy or refinance, which reduces the flow of new MSRs being created. The Iran conflict in 2026 is a recent example: primary mortgage rates jumped about 45 basis points in a single month, meaningfully affecting both origination volume and MSR values. Borrowers with 3 percent mortgages are over 300 basis points out of the money at current rates, which means there is essentially no refinance incentive and those loans could sit in a portfolio for 10 to 15 years or more.

What is recapture and why does it matter for MSR valuation?

Recapture refers to a servicer’s ability to retain a borrower by refinancing them when they would otherwise pay off their loan. If a servicer can recapture a borrower who prepays, the paid-in-full loan does not represent the same loss of value as a loan that leaves the portfolio entirely. Recapture has been incorporated into MSR pricing by buyers for over a decade. Mike Carnes states that in his 17 years at MIAC, every deal they have brokered has had some amount of recapture value embedded in the buyer’s bid. MIAC’s position is that recapture should be transparent and shown as its own separate line item rather than buried in prepayment speed assumptions. Some firms advertise that they can recapture 80 percent of their mortgage servicing rights, which has significant implications for how those MSRs are valued and how stable they are as an asset.

What is the FASB recapture change and why does it matter?

The Emerging Issues Task Force recently recommended to FASB that it authorize the direct incorporation of recapture value into fair market value for GAAP reporting purposes. This change is highly anticipated to take effect. MIAC has been actively engaged with FASB on this issue and strongly supports the change. Currently, many firms incorporate recapture into their MSR valuations through adjusted prepayment speed assumptions without explicitly disclosing it. If FASB approves the EITF recommendation, recapture would become a recognized and transparent component of fair value reporting, which Mike describes as a game changer for the industry.

Why do geographic factors matter in MSR valuation?

Geography affects MSR value through insurance costs, foreclosure timelines, and loan performance patterns. In some states, insurance premiums have increased 20 to 30 percent due to wind, hail, fire, or hurricane risk, which affects borrower carrying costs and default probability. Foreclosure timelines vary dramatically by state. Judicial states like New York have among the longest timelines in the country. The greater Chicago area has seen elongated timelines in recent years. In some jurisdictions, a foreclosure can take up to 10 years to complete. For servicers holding Ginnie Mae non-performing loans, the decision to buy out a defaulted loan from the pool depends heavily on how long it will sit in foreclosure and how much the servicer must advance each month while it does. A loan that makes sense to buy out in one state may not make sense in another purely because of foreclosure timeline differences.

What is the outlook for non-QM MSRs?

Non-QM MSR volume is growing every month at MIAC. The team sees significant DSCR product and is seeing very strong credit profiles on that collateral: FICO scores of 740 to 750 and above, loan-to-value ratios of 30 to 40 percent, and full documentation in many cases. When you layer high credit quality borrowers at low LTVs with three to five years of prepayment protection, the resulting MSR prices very well. Margins on non-QM product are strong right now, and finance providers that are not already in the space are increasingly looking at ways to enter it. Mike describes non-QM MSR as an excellent product based on current market experience.

Frequently Asked Questions About Mortgage Servicing Rights

What is a mortgage servicing right?

A mortgage servicing right is the contractual right to collect mortgage payments on behalf of an investor in exchange for a fee. Servicers earn that fee as long as the loan remains active. The value of the MSR depends on how long the loan stays on the books, which is primarily driven by prepayment speed, interest rates, and borrower behavior.

Why do mortgage servicing rights increase in value when interest rates rise?

When interest rates rise, borrowers with existing low-rate mortgages have no incentive to refinance, which reduces prepayment speeds and extends the expected life of the servicing relationship. Longer expected cash flows mean higher value. Rising rates also increase float earnings on escrow balances, adding further value. This inverse relationship between MSR value and rate direction is known as the natural hedge.

What is recapture in mortgage servicing?

Recapture is the ability of a servicer to retain a borrower who is about to pay off their loan by originating a new loan for them. When a servicer successfully recaptures a refinancing borrower, the paid-in-full loan is replaced with a new servicing relationship rather than lost entirely. Firms with strong recapture capabilities see less value erosion when rates fall and prepayments rise.

What does MIAC’s MSR team do?

MIAC’s MSR team values residential and commercial mortgage servicing rights and brokers MSR transactions on behalf of buyers and sellers. The team valued over 52 trillion dollars in MSRs last year across residential and commercial portfolios and holds a quarterly assignment to value every mortgage servicing right in the United States. The team is led by Mike Carnes and Jennifer Howell, who together bring over 50 years of combined experience valuing this asset class.