Excess MSRs

In our view, the approximately $10 trillion mortgage servicing market presents a number of compelling investment opportunities. A mortgage servicing right (“MSR”) provides a mortgage servicer with the right to service a pool of mortgage loans in exchange for a fee.

Approximately 74% of MSRs are currently owned by banks. We expect this number will continue to decline as banks face pressure to reduce their MSR exposure as a result of heightened capital reserve requirements under Basel III, regulatory scrutiny and a more challenging servicing environment. As banks continue to sell MSRs, there is an opportunity for entities such as New Residential to participate through co-investment in the corresponding Excess MSRs.

An MSR is made up of two components: a basic fee and an Excess MSR. The basic fee is the amount of compensation for the performance of servicing duties, and the Excess MSR is the amount that exceeds the basic fee. As the owner of an Excess MSR, we collect monthly cash flows from the MSR, but do not assume any servicing duties, advance obligations or liabilities associated with the portfolios underlying our investment.

As a wholly owned subsidiary of Newcastle, New Residential pioneered investments in Excess MSRs.

Hypothetical Mortgage Loan
Principal Balance $100,000
Loan Term 30 Years
Annual Interest Rate 6%
Monthly Payment $600
Monthly MSR Fee
(30 bps/yr)
Paid to Mortgage Owner $575

Hypothetical MSR 
MSR 30bps  
Basic Servicing (6bps) Fixed fee paid to servicer
Excess MSR (24bps) Amount in excess of basic fee

For illustrative purposes only. Please see Terms of Use.