Mortgage servicing rights and interest rate volatility

While there is consensus that an increase in interest rate volatility reduces the fair value of mortgages and mortgage-backed securities, there is less agreement on the question of how volatility affects the value of mortgage servicing rights (MSRs). A volatility dependent prepayment model is needed to better reflect the true value of MSRs, say Andrew Kalotay and Qi Fu

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

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here