Mortgage servicing rights and interest rate volatility

MSRs

Mortgage servicing rights (MSRs) exist simply because every mortgage loan must be serviced. Servicing of a mortgage loan involves administrative tasks such as collecting monthly payments and forwarding the proceeds to the owners of the loan (Fabozzi & Modigliani, 1992). Servicing rights on mortgage loans are important to financial institutions because they can produce significant revenue over the life of the loan, while also allowing the institution to maintain a relationship with the customer f