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Related Flashcards
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Cards In This Set
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What is Mortgage Servicing
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The contractual right to receive mortgage payments from mortgagors for a fee and to remit pieces of those payments- principal, interest, taxes, and insurance to the appropriate recipients
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How do you determine the value of mortgage servicing rights?
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The net present value of the income stream generated by the portfolio, less the operating expenses incurred to administer the portfolio, adjusted for the call option given the mortgagor by virtue of his or her right to repay at will
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Name some factors that may affect the determination of the servicing rights value
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What are the 5 types of value
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Define Fair Value
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Fair value, referred to as market value, represents the amount a servicing portfolio is worth when offered for sale, in the open market, to a reasonably knowledgeable buyer, given sufficient time within which to analyze the portfolio and adequate information upon which to base a bid
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Define economic value
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The amount a servicing portfolio is worth to a specific entity, given its unique operating environment
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Define Book Value
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The amount a particular servicing portfolio is worth as reflected on the balance sheet
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Define liquidation value
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The amount a servicing portfolio is worth if sold by a creditor or other liquidation scenario
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Define regulatory value
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The amount a particular servicing portfolio is worth under risk-based capital regulations
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Servicing prices are ordinarily expressed in terms of what
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In terms of a percentage of unpaid principal balance (UPB), i.e. 1.50% of UPB
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What terms do some industry participants prefer to refer to servicing value
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In terms of a multiple of the service fee
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What is the 6 step process to servicing portfolio valuation
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What is a prudent concluding step to this servicing portfolio valuation?
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To review the results for reasonableness
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What are the two major risks that servicing returns and value are heavily influenced
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Default and prepayment
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Projecting portfolio characteristics can be categorized in one of the following two ways:
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