OAS Servicing Valuations

You cannot achieve best execution for your secondary market trades if you don’t take into account the value of the servicing asset. In some cases, it makes sense to retain these assets. In others, a better outcome can be achieved by selling them off. While very few of our clients come to us only to put a value on these assets, we have done that in the past.

It’s more common for us to provide our valuation expertise as part of a larger engagement. For instance, many of our clients execute trades but retain the servicing. While our primary business has long been providing best execution trades into the secondary market, it’s important for our clients who retain their servicing to know the value of these assets. As a result, we have built a successful business performing Option-Adjusting Pricing for Mortgage Servicing Rights.

This is an important part of the total sale optimization offering that MCM makes available because there are circumstances where it makes sense to sell off the servicing. To make that determination, we have developed an expertise at evaluating these assets.

Unlike most companies that evaluate these assets, we don’t rely on a cash flow model. We use the OAS valuation methodology. This takes into account many factors, including the type of loan, the loan amount, the intent, the purpose, the location, and other factors that can impact the value. We then test these values by performing what-if analysis, shocking interest rates up and down and using the client’s cost of funds and their return requirements as part of the valuation metric.

This method is much more accurate and can be customized to the specifics of the lender, which provides advantages that other methods do not. We don’t just answer the question, “What is the value of the servicing for this loan to the market?” We answer the question, “What is this loan’s servicing worth to you?”

We don’t go into the market in search of similar portfolios to give our clients an estimate of the value in their own portfolio. We actually do a loan level analysis of our clients’ portfolios.

This is a very complex analysis that requires us to know our client’s earnings goal, consider the spread between that amount and that the market is currently offering, factor in the yield curve and consider the duration of the assets. We evaluate every loan in the portfolio individually and then combine the results to value our client’s servicing portfolio.

Our clients have a much better idea of the value of their business and can make better decisions about the execution of future loan production. And when it comes to selling their existing servicing rights, they know exactly what these assets are worth to them, so they never have to settle for selling for less.

When it comes to hedging strategy, having this kind of valuation on their servicing is very valuable, especially in an environment where interest rates are rising and lenders need to hedge long term locks and float down locks.

MCM provides this service to clients working with us through either type of relationship:

Since 1994, Mortgage Capital Management has helped mortgage bankers of every size become more profitable through the use of best-in-class pipeline risk management tools and strategies. Our pipeline risk management services, secondary marketing consulting, and hedging/trading services enable clients to prosper in any market environment.

 For nearly 30 years, the U.S. mortgage industry has called upon Mortgage Capital Management for expert advice and proven technologies all designed to deliver best execution in service to a more profitable enterprise. Our customer list includes some of the most successful firms in the business.

 Viewing the online demo costs you nothing and will shed light on a unique approach to secondary marketing success that you won’t find anywhere else.

 We’re also open to discussing your unique requirements to arrive at a workable solution that will help you achieve your unique goals. Once you see what’s possible with modern financial services technology, your successful future will begin to come into focus. Don’t settle for mediocre when excellence is achievable.

Get the MCM Competitive Advantage! Call us to today to learn more or schedule an online demo: 858.483.4404 x220