The impact of rising interest rates is one the real estate market is watching closely. But what does it mean for mortgage firms trading on Wall Street?
Well, if it’s a servicing company, rising interest rates could mean higher profits, according to a new research note from Sterne Agee analyst Henry Coffey.
When rates rise, payment speeds fall and servicing profitability and values increase, Coffey said.
"The cash market for servicing or the priced paid for MSRs based on servicing balances has moved over the last few months from below 75 bps to close to 100 bps," Coffey wrote. "In addition, our MBS pricing-based model which looks at the value the market is looking to place on an incremental 50 bps of coupon points to the potential for considerable upside in the valuation of MSRs. In this report we look at the expected increase in value of PHH Corp (PHH) and PennyMacs (PMT) given trends in MSR value signaled by the mortgage market."