Premier Member White Paper Profile: SitusAMC Examines Mortgage Servicing Rights
MBA regularly highlights new white papers from its Premier Members. Today, we look at SitusAMC’s recently released Mortgage Servicing Rights in 2025: Navigating Market Volatility.
Mark Garland is Managing Director of MSR Pricing and Analytics for SitusAMC. He leads SitusAMC’s residential mortgage servicing rights analytics team, which supports the company’s MSR valuation and transaction advisory services. In this role, Garland oversees the research and modeling of the variables and scenarios affecting the value of MSRs, which involves bringing client’s MSR portfolios to market.
MBA NewsLink: Briefly describe the key insights or findings presented in your white paper.
Mark Garland: First, new risks. In 2025, uncertainty and volatility are creating new risks for MSR servicers and asset holders and making it difficult to determine strategy.
Second, shifting rate dynamics. The market has bifurcated as a result of interest-rate dynamics.
Third, difficulties hedging. The inversion of the yield curve has made it tougher to hedge MSR investments.
Fourth, limited recapture opportunities. The industry has made strides in risk-mitigation through recapture–though right those opportunities are few and far between.
Fifth, more M&A. Watch for continued merger and acquisition activity, as 2025 may be the “year of capitulation.”
Sixth, evolving ownership structures. The MSR landscape is evolving in terms of ownership structures.
Seventh, political challenges. Market participants must navigate political variables that could reshape the MSR landscape, including changes to the government-sponsored enterprises and regulatory bodies.
MBA NewsLink: What industry challenges or opportunities does your white paper address?
Mark Garland: In 2025, uncertainty and volatility are creating new risks for MSR servicers and asset holders and making it difficult to determine strategy. Even in less volatile times, making decisions around MSRs is challenging, given how opaque the market is.
In addition, most mortgage banks have interconnected webs of origination and servicing activity–an institution can’t make a move in one area without affecting the other. A decision to shut down production in a challenging origination market will have implications for a servicing portfolio and profitability. So this year is proving particularly thorny for servicers.
The market has bifurcated as a result of interest-rate dynamics. MSR servicing is an elaborate bet on how long the mortgage loan will exist. The longer an investor holds an MSR, the more valuable it is. Thus, MSR investors who purchased assets during the pandemic era have found themselves in the sweet spot, as mortgage holders remain reluctant to trade in low-priced loans. Conversely, MSR holders holding a mortgage at a 7% rate could face a shorter-than-desired life expectancy on the asset if rates fall.
The inversion of the yield curve has made it tougher to hedge MSR investments.
Sophisticated MSR investors mitigate risk through hedging, buying instruments that move in the opposite direction of interest rates. However, when the yield curve inverted beginning in July 2022, it became both expensive and difficult to hedge.
The industry has made strides in risk-mitigation through recapture–though right those opportunities are few and far between. Lenders have become experts at proactively engaging with borrowers and offering them new loans when interest rates fall. Although this extinguishes the servicing right, the ins of holding MSRs as rates fall. However, heading into the second quarter of 2025, with mortgage rates just a bit below recent highs, institutions had few recapture opportunities–perhaps 10% to 20% of their loans.
Watch for continued merger and acquisition activity. As noted above, 2025 may be the year of capitulation.
Market players who weathered several challenging years are now making the decision to exit. Retail originators that generate their own loans are in a more favorable position than buyers reliant on wholesale, correspondent, or bulk acquisition channels, which face inflated prices due to limited supply. Despite optimism in late 2024 that rates would decline and demand would return, the “higher for longer” rate environment has worn down many operators. This has led to a rise in mergers and acquisitions, including high-profile deals like Rocket Companies’ agreement to acquire Mr. Cooper Group in a $9.4 billion all-stock transaction. At the same time, smaller players are exiting the business, and some are preparing to offload their MSR portfolios.
The MSR landscape is evolving in terms of ownership structures. While some institutions once focused solely on holding servicing assets without originating loans, regulators discouraged this model. However, it’s making a cautious return in a new form:
Partnerships between originators and passive investors. These arrangements, increasingly involving real estate investment trusts, allow capital partners to own portions of MSR portfolios while the originator continues to manage borrower relationships and operational execution. Still, these investors are highly selective, as the quality of the servicer directly impacts loan performance. This dynamic has strengthened demand for top-tier servicers while shrinking interest in middle-market players who lack the scale or sophistication to weather market volatility.
Major political variables could reshape the MSR landscape: government-sponsored enterprise reform and worsening housing affordability. Industry participants must interpret the implications for MSRs of the Trump Administration’s sweeping changes in the oversight landscape, affecting the Consumer Financial Protection Bureau and the Federal Housing Finance Agency as well as Fannie Mae and Freddie Mac.
MBA NewsLink: Who is the primary audience for your white paper? (e.g., lenders, servicers, other industry professionals)
Mark Garland: Servicers and MSR Investors
MBA NewsLink: What actions would you like readers to take after engaging with your white paper?
Mark Garland: Download our “Mortgage Servicing Rights in 2025: Navigating Market Volatility” white paper, available here: https://www.situsamc.com/MSR2025.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
