Mr Cooper Group Inc (COOP)

[bkshadow]

DT, thanks for looking at the interest rate issue...

...as it relates to the value of COOPs MSR's.

...it's pertinent to have analytic discussions on COOP based upon actual technical data.

...again, thanks.

Donotunderstand Member Level Friday, 06/19/20 07:13:57 PM
Re: bkshadow post# 627094 Post #627133 of 627152

Agree

With lower rates - the average life of mortgages and thus the rights to service them declines

such decline independently reduces the value of a book of MSR

but COOP makes it back - possibly not in same time period as this gets too complicated for me to study enough

COOP makes it back as new mortgages are issued by anyone and they service them at initial year payment - 2x average year

but that new income is lagged

...the "interest rate risk" on the valuation of Mortgage Servicing Rights (MSR's).

First, they tend to follow "indexed" the 30-year fixed mortgage rates and the 5-year 'swap rates. In the COOP slide presentation for the 1st quarter of 2020 (where COOP took a $383M hit to the asset value of its' MSR's (and income statement matching loss) both were descending BUT per not fully COVID 19 affected.

Look at the slide real carefully and look at the "direction" COOP appears to illustrate going into the 2nd quarter (which will be very interesting to see as the 30-year fixed is NOW 3.12% versus the 3.50% and the 5-year swap rate is NOW .40 versus 0.53 used by COOP at March 31, 2020).



Second, the impact of the interest rate (bps) changes is NOT EQUAL for increases versus decreases; DECREASES in interest rates impact the MSR portfolio value MORE than INCREASES.

Here is an example from an article.