Mortgage Servicing Rights Valuations
HFW provides banks and credit unions a low cost valuation model that calculates the value of mortgage servicing assets. The mortgage servicing rights (“MSR”) value is a present value of the future income stream attained from mortgage servicing fees, ancillary income from processing mortgage and related payments, delinquency effects and overnight income of processing “float.” The value is the sum of the present value of these future income streams, which is impacted by assumptions on prepayment or decay rates, mortgage age and classifications and the applied discount rate.
HFW’s MSR process classifies the serviced mortgages into groups based on maturity, payment terms, seasoning and interest rates. The result is a series of mortgage pools with homogeneous characteristics, which are then subjected to appropriate prepayment speeds to derive a future stream of expected cash flows for each pool. Rates for fixed and floating rate mortgages are based on the current industry accepted rate, which is used to discount the future cash flows. The sum of the present value of each pool is the mortgage servicing portion of the valuation.