The Institutional Risk Analyst

Whereas in the early part of the year, mortgage lenders were looking forward to lower interest rates and higher lending volumes, the start of hostilities in Iran suddenly reversed this narrative. As we discussed this week in our podcast with Julia LaRoche, the war with Iran will likely keep inflation and interest rates elevated for months or years to come.

So why would a firm like CrossCountry or UWMC be a buyer of higher coupon MSRs?  The short answer is that they believe their ability to retain the borrower by recapturing a prepayment will offset the obvious negative of high prepayments that comes with a lower interest rate environment.  These firms, it seems, would rather try to recapture prepayments on higher rate MSRs than own lower coupons and benefit from the stable cash flow from the servicing.