Mortgage rates continued their moderate volatility during the month of April. MCT’s mortgage rates model reflected a slight increase in mortgage rates of about two (2) basis points, on average. MCT’s current primary 30-year fixed rate closed the month at 6.72%. Current mortgage rates levels reflect uncertainties within the macro-economic picture as recession fears are more relevant than during Q1, 2025.
The labor market remained strong in April, and cooling inflation figures from March might have incented the Fed to lower rates in May. However, the broadly utilized tariffs are posing a threat to inflation and should prevent the Fed from taking any action in May.
MSR values, so far into 2025, have held steady and are reflecting a resilient MSR market in the face of several uncertainties. Many servicers have posted losses at the end of Q1, 2025, however, MSR values and persistent demand for MSR are reducing their fears of any potential future risks. If necessary, companies can sell off their MSRs at a premium price, to offset any financial losses.
Loan production volume remained relatively weak during the month of April. MCT continues to observe an increase in mortgage applications when mortgage rates dip below 6.75%. Recent trends did reflect borrowers’ demand for loans even with the slightest drop in mortgage rates. However, we do not anticipate a refinancing boom on the horizon. Although, MCT anticipates a periodic uptick in prepayments as borrowers take advantage of those occasional mortgage rates declines.
Mortgage delinquencies continue their upward trend as borrowers continue to struggle with their rising debt and higher property taxes and insurance. More borrowers are falling behind on their mortgage payments, particularly within the 90+ days delinquency category. Despite this upward trend, overall delinquencies generally remain in line with acceptable historical levels.
New Production Value Trends:
Property tax and home insurance costs are making it more difficult for borrowers to qualify for mortgage loans. This phenomenon is weighing heavily on the middle class and low-income borrowers. Current monthly escrow payments make up about 20-25% of the total monthly mortgage payment. This increase represents about a 200%-300% rise since 2021.
While high monthly escrow payments will benefit MSR values, it adds additional financial pressure that could lead to potentially higher mortgage delinquencies.
Recent servicing release premiums (SRP) remain very strong due to low new loan production volume. The SRP prices remain very attractive and offer much-needed financial relief for many lenders. Many lenders with servicing portfolios are challenged to determine which mortgage loans they should retain or release. It requires a balancing act to prevent their fee income from eroding while benefiting from the attractive SRP prices. Our estimates point to the 25% – 35% retention level to simply maintain level servicing income.
SRP values continue to be about 10-15 basis points higher than fair values, though, that spread has leveled off during Q1, 2025. We expect the trend to continue for the foreseeable future. We continue to advocate caution when capitalizing new MSR production at moderate price levels as the market navigates current mortgage rates uncertainties.
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