Even as home-loan refinancing volumes drop, the value of handling homeowners’ monthly mortgage payments is conversely rising
– March 29, 2022 | by Telis Demos, Wall Street Journal
Mortgage companies have a not-so-secret weapon as they deal with rising interest rates and decreasing volumes: Mortgage-servicing rights.
When a typical mortgage is originated, alongside that mortgage is the right to collect monthly payments from the borrower. The servicer that does that can earn a fee for taking in principal, interest, tax and insurance payments, and holding that money until it is due to investors, governments, insurers and so on. As was the case during much of the pandemic, if mortgage rates are plunging, and people are rapidly paying off their mortgages via refinancing, these rights become less valuable because they are much shorter-lived. Low interest rates also mean that any money being held in escrow by the servicer isn’t earning much in interest.
Read the full article at the Wall Street Journal.