Coop does not have a Mortgage Portfolio. If they did, it would be designated as "held for Investment" and would not be subject to any "mark to market" valuation changes.
what Coop DOES have is an MSR Portfolio which is an asset on their balance sheet that is Valued by taking the net present value of the life of the expected fees from servicing the loans. This asset IS mark-to-market every month and as a result is interest rate sensitive. It is almost universal practice for banks and non-bank servicers to hedge the interest rate risk, but they generally will want to take a little profit off the hedging activities.
When rates go UP, the likelihood of a pre-payment goes down and therefor the expected life of the loan increases and as a result so does the number of months that COOP will service the loans. So the valuation of the MSR portfolio will go UP, and that would come through the income statement as profit. It will be hedged, however and the hedge will take a a loss. The NET of the valuation gain and the hedge loss should be a gain.
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