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Articles Tagged with: MSRs

Webinar: Tailoring Stress Scenarios to Changing Risk Environments

July 13th | 1:00 p.m. ET

Designing market risk stress scenarios is challenging because of the disparate ways in which various risk factors impact different asset classes. No two events are exactly alike, and the Covid-19 pandemic and the Russian invasion of Ukraine each provide a case study for risk managers seeking to incorporate events without precise precedents into existing risk frameworks.
Join RiskSpan’s Suhrud Dagli and Martin Kindler on Wednesday, June 15th at 1 p.m. ET as they illustrate an approach for correlating rates, spreads, commodity prices and other risk factors to analogous historical geopoltical disruptions and other major market events. Market risk managers will receive an easily digestable tutorial on the math behind how to create probability distributions and reliably model how such events are most likely to impact a portfolio.


Featured Speakers

Suhrud Dagli

Co-Founder and CIO, RiskSpan

Photo of Martin Kindler

Martin Kindler

Managing Director, RiskSpan

Why Climate Risk Matters for Mortgage Loan & MSR Investors 

The time has come for mortgage investors to start paying attention to climate risk.

Until recently, mortgage loan and MSR investors felt that they were largely insulated from climate risk. Notwithstanding the inherent risk natural hazard events pose to housing and the anticipated increased frequency of these events due to climate change, it seemed safe to assume that property insurers and other parties in higher loss position were bearing those risks. 

In reality, these risks are often underinsured. And even in cases where property insurance is adequate, the fallout has the potential to hit investor cash flows in a variety of ways. Acute climate events like hurricanes create short-term delinquency and prepayment spikes in affected areas. Chronic risks such as sea level rise and increased wildfire risk can depress housing values in areas most susceptible to these events. Potential impacts to property insurance costs, utility costs (water and electricity in areas prone to excessive heat and drought, for example) and property taxes used to fund climate-mitigating infrastructure projects all contribute to uncertainty in loan and MSR modeling. 

Moreover, dismissing climate risk “because we are in fourth loss position” should be antithetical to any investor claiming to espouse ESG principles. After all, consider who is almost always in the first loan position – the borrower. Any mortgage investment strategy purporting to be ESG friendly must necessarily take borrower welfare into account. Dismissing climate risk because borrowers will bear most of the impact is hardly a socially responsible mindset. This is particularly true when a disproportionate number of borrowers prone to natural hazard risk are disadvantaged to begin with. 

Hazard and flood insurers typically occupy the loss positions between borrowers and investors. Few tears are shed when insurers absorb losses. But society at large ultimately pays the price when losses invariably lead to higher premiums for everybody.    

Evaluating Climate Exposure

For these and other reasons, natural hazards pose a systemic risk to the entire housing system. For mortgage loan and MSR investors, it raises a host of questions. Among them: 

  1. What percentage of the loans in my portfolio are susceptible to flood risk but uninsured because flood maps are out of date? 
  2. How geographically concentrated is my portfolio? What percentage of my portfolio is at risk of being adversely impacted by just one or two extreme events? 
  3. What would the true valuation of my servicing portfolio be if climate risk were factored into the modeling?  
  4. What will the regulatory landscape look like in coming years? To what extent will I be required to disclose the extent to which my portfolio is exposed to climate risk? Will I even know how to compute it, and if so, what will it mean for my balance sheet? 


Incorporating Climate Data into Investment Decision Making

Forward-thinking mortgage servicers are at the forefront of efforts to get their arms around the necessary data and analytics. Once servicers have acquired a portfolio, they assess and triage their loans to identify which properties are at greatest risk. Servicers also contemplate how to work with borrowers to mitigate their risk.  

For investors seeking to purchase MSR portfolios, climate assessment is making its way into the due diligence process. This helps would-be investors ensure that they are not falling victim to adverse selection. As investors increasingly do this, climate assessment will eventually make its way further upstream, into appraisal and underwriting processes. 

Reliably modeling climate risk first requires getting a handle on how frequently natural hazard events are likely to occur and how severe they are likely to be. 

In a recent virtual industrial roundtable co-hosted by RiskSpan and Housing Finance Strategies, representatives of Freddie Mac, Mr. Cooper, and Verisk Analytics (a leading data and analytics firm that models a wide range of natural and man-made perils) gathered to discuss why understanding climate risk should be top of mind for mortgage investors and introduced a framework for approaching it. 


Building the Framework

The framework begins by identifying the specific hazards relevant to individual properties, building simulated catalogs of thousands of years worth of simulated events, computing likely events simulating damage based on property construction and calculating likely losses. These forecasted property losses are then factored into mortgage performance scenarios and used to model default risk, prepayment speeds and home price impacts. 


Responsibility to Borrowers

One member of the panel, Kurt Johnson, CRO of mega-servicer Mr. Cooper, spoke specifically of the operational complexities presented by climate risk. He cited as one example the need to speak daily with borrowers as catastrophic events are increasingly impacting borrowers in ways for which they were not adequately prepared. He also referred to the increasing number of borrowers incurring flood damage in areas that do not require flood insurance and spoke to how critical it is for servicers to know how many of their borrowers are in a similar position.

Johnson likened the concept of credit risk layering to climate risk exposure. The risk of one event happening on the heels of another event can cause the second event to be more devastating than it would have been had it occurred in a vacuum. As an example, he mentioned how the spike in delinquencies at the beginning of the covid pandemic was twice as large among borrowers who had just recovered from Hurricane Harvey 15 months earlier than it was among borrowers who had not been affected by the storm. He spoke of the responsibility he feels as a servicer to educate borrowers about what they can do to protect their properties in adverse scenarios.

Recent Edge Platform Updates

Edge Platform Updates

MSR Engine

The Platform’s extensive library of available MSR analytic outputs has been expanded to include Effective Recapture Rate and other Income and Expense fields.

Base servicing cost inputs for MSR assumptions have also been enhanced.


The ETL tool for loan onboarding has been further enhanced with machine learning capabilities.

New fields for querying options and enhanced segmentation have been added. And SOFRWalSpread and SOFRSpotSpread are now captured in static analysis output.


Special Eligibility Program fields have been added to Fannie and Freddie pool data outputs along with a complementing SpecialProgram100 filter

Fannie and Freddie datasets now include CBR and CPR metrics (previously only available for Ginnies).

New support has been added for saving CoreLogic LLD queries with complement filters.

Enhanced historical date-based queries in Edge Perspective (e.g., option to run and save queries with relative factor dates rather than specifically coded date.


Daniel Fleishman Joins RiskSpan’s MSR Team

ARLINGTON, Va., May 3, 2022 — RiskSpan, a leading provider of residential mortgage and structured product data and analytics, has appointed Daniel Fleishman as Managing Director within its recently announced Mortgage Servicing Rights unit.

Fleishman’s career includes 17 years at BlackRock where he worked extensively with banks, mortgage companies and REITs to support MSR valuation, risk measurement and hedging practices. In that role, Fleishman gained deep expertise in MSR cash flow and mortgage modeling as well as experience managing diverse client needs ranging from model validation to MSR acquisition analysis. Earlier in his career, he also spent more than a decade at the Federal Reserve Bank of New York.

“Dan’s extensive expertise with mortgage and MSR analytics is a wonderful complement to our Edge Platform,” said Bernadette Kogler, CEO of RiskSpan. “With the MSR application starting to gain real traction, Dan is just the person to help ensure our clients are getting all they can out of the capability.”

“I am delighted about this opportunity to be a part of such a dynamic company in this new role,” said Fleishman. “I look forward to helping Edge users manage multiple loan-level datasets with ease and visualize servicing cash flows and analytics rapidly and with granularity.”

As announced last week, RiskSpan’s cloud-native MSR application is a new component of its award-winning Edge Platform. It enables investors to price MSRs and run cash flows on the fly at the loan level, opening the door to a virtually limitless array of scenario-based analytics. The flexibility afforded by RiskSpan’s parallel computing framework allows for complex net cash flow calculations on hundreds of thousands of individual mortgage loans simultaneously. The speed and scalability this affords makes the Edge Platform ideally suited for pricing even the largest portfolios of MSR assets and making timely trading decisions with confidence.

About RiskSpan, Inc.
RiskSpan offers end-to-end solutions for data management, trading risk management analytics, and visualization on a highly secure, fast, and fully scalable platform that has earned the trust of the industry’s largest firms. Combining the strength of subject matter experts, quantitative analysts, and technologists, RiskSpan’s Edge platform integrates a range of datasets – structured and unstructured – and off-the-shelf analytical tools to provide you with powerful insights and a competitive advantage. Learn more at


Webinar Recording: How Much Will That MSR Portfolio Really Cost You?

Recorded: June 8th | 1:00 p.m. ET

Accurately valuing a mortgage servicing rights portfolio requires accurately projecting MSR cash flows. And accurately projecting MSR cash flows requires a reliable forecast of servicing costs. Trouble is, servicing costs vary extensively from loan to loan. While the marginal cost of servicing a loan that always pays on time is next to nothing, seriously delinquent loans can easily cost hundreds, if not thousands, of dollars per year.

The best way to account for this is to forecast and assign servicing costs at the loan level – a once infeasible concept that cloud-native technology has now brought within reach. Our panelists present a novel, granular approach to servicing cost analytics and how to get to a truly loan-by-loan MSR valuation (without resorting to rep lines).




Featured Speakers

Venkat Mullur

SVP, Capital Markets, Ocwen

Paul Gross

Senior Quantitative Analyst, New Residential Investment Corp.

Dan Fleishman

Managing Director, RiskSpan

Joe Makepeace

Director, RiskSpan

RiskSpan Announces Cloud-Native Mortgage Servicing Rights Application

ARLINGTON, Va., Mortgage fintech leader RiskSpan announced today that it has added a Mortgage Servicing Rights (MSR) application to its award-winning on-demand analytics Edge Platform.

The application expands RiskSpan’s unparalleled loan-level mortgage analytics to MSRs, an asset class whose cash flows have previously been challenging to forecast at the loan level. Unlike conventional MSR tools that assume large numbers of loans bucketed into “rep lines” will perform identically, the Edge Platform’s granular approach makes it possible to forecast MSR portfolio net cash flows and run valuation and scenario analyses with unprecedented precision.   

RiskSpan’s MSR platform integrates RiskSpan’s proprietary prepayment and credit models to calculate option-adjusted risk metrics while also incorporating the full range of client-configurable input parameters (costs and recapture assumptions, for example) necessary to fully characterize the cash flows arising from servicing. Further, its integrated data warehouse solution enables easy access to time-series loan and collateral performance. 

“Our cloud-native platform has enabled us to achieve something that has long eluded our industry – on-demand, loan-level cash flow forecasting,” observed RiskSpan CEO Bernadette Kogler. “This has been an absolute game changer for our clients.”

Loan-level projections enable MSR investors to re-combine and re-aggregate loan-level cash flow results on the fly, opening the door to a host of additional, scenario-based analytics – including climate risk and responsible ESG analysis. The flexibility afforded by RiskSpan’s parallel computing framework allows for complex net cash flow calculations on hundreds of thousands of individual mortgage loans simultaneously. The speed and scalability this affords makes the Edge Platform ideally suited for pricing even the largest portfolios of MSR assets and making timely trading decisions with confidence.

About RiskSpan 
RiskSpan offers end-to-end solutions for data management, trading risk management analytics, and visualization on a highly secure, fast, and fully scalable platform that has earned the trust of the industry’s largest firms. Combining the strength of subject matter experts, quantitative analysts, and technologists, RiskSpan’s Edge platform integrates a range of data-sets – structured and unstructured – and off-the-shelf analytical tools to provide you with powerful insights and a competitive advantage. Learn more at 


Industry Virtual Roundtable: The Intersection of Climate Risk Management with Mortgage Loan & MSR Investing

April 14th | 2:00-3:15 p.m. ET

With both the public and private sectors increasingly making climate risk management a priority, attention in our industry is turning to what it means for mortgage loan and MSR investors.

Industry experts join RiskSpan and Housing Finance Strategies for a roundtable event where they engage in a discussion on the latest approaches and technology for mitigating climate risk management in mortgage portfolios.

The loan-level cash flows discussed in this webinar were generated using RiskSpan’s Edge Platform.




Agenda (all times Eastern)


Faith Schwartz, Founder & CEO, Housing Finance Strategies


Janet Jozwik, Senior Managing Director and Head of Climate Risk, RiskSpan
Dan Raizman, Global Resilience Manager, Verisk Analytics


Faith Schwartz, Moderator
Mark Hanson, SVP, Freddie Mac
Kurt Johnson, CRO, Mr. Cooper
Sean Becketti, former Freddie Mac
Bernadette Kogler, CEO, RiskSpan


Webinar: Geocoding Mortgage Data for ESG and Climate Risk Analysis

Recorded: February 16th | 1:00 p.m. ET

Geocoding remains a particularly vexing challenge for the mortgage industry. Lenders, servicers, and loan/MSR investors know the addresses of the properties securing their mortgage assets. But most data pertaining to climate and other ESG considerations is available only by matching to a census tract or latitude/longitude.

And if you have ever tried mapping addresses, you know this exercise can be a lot harder than it looks. Fortunately, a growing body of geocoding tools and techniques is emerging to make the process more manageable than ever, even with less than perfect address data.

Our panel presents a how-to guide on geocoding logic and its specific application to the mortgage space. You will learn a useful waterfall approach for linking census-tract-level, geo-specific data for climate risk and ESG to the property addresses in your portfolio.


Featured Speakers

Suhrud Dagli

Chief Innovation Officer, RiskSpan

Jason Huang

Manager, RiskSpan

Jason Lee

Software Engineer, RiskSpan

Improving MSR Pricing Using Cloud-Based Loan-Level Analytics — Part II: Addressing Climate Risk

Modeling Climate Risk and Property Valuation Stability

Part I of this white paper series introduced the case for why loan-level (as opposed to rep-line level) analytics are increasingly indispensable when it comes to effectively pricing an MSR portfolio. Rep-lines are an effective means for classifying loans across many important categories. But certain loan, borrower, and property characteristics simply cannot be “rolled up” to the rep-line level as easily as UPB, loan age, interest rate, LTV, credit score, and other factors. This is especially true when it comes to modeling based on available information about a mortgage’s subject property.

Assume for the sake of simplicity that human and automated appraisers do a perfect job of assigning property values for the purpose of computing origination and updated LTVs (they do not, of course, but let’s assume they do). Prudent MSR investors should be less interested in a property’s current value than in what is likely to happen to that value over the expected life of their investment. In other words, how stable is the valuation? How likely are property values within a given zip code, or neighborhood, or street to hold?

The stability of any given property’s value is tied to the macroeconomic prospects of its surrounding community. Historical and forecast trends of the local unemployment rate can be used as a rough proxy for this and are already built into existing credit and prepayment models. But increasingly, a second category of factors is emerging as an important predictor of home price stability, the property’s exposure to climate risk and natural hazard events.

Climate exposure is becoming increasingly difficult to ignore when it comes to property valuation. And accounting for it is more complicated than simply applying a premium to coastal properties. Climate risk is not just about hurricanes and storm surges anymore. A growing number of inland properties are being identified as at risk not just to wind and water hazards, but to wildfire and other perils as well. The diversity of climate risks means that the problem of quantifying and understanding them will not be solved simply by fixing out-of-date flood plain maps.

MSR investors are exposed to climate risk in ways that whole loan or securities investors are not. When climate events force borrowers into forbearance or other repayment plans, MSR investors not only forego the cash flows associated with missed interest payments that will never be made, but also incur the additional costs of administering the loss mitigation programs and making necessary P&I and escrow advances.   

Overlaying climate scenario analysis on top of traditional credit modeling is unquestionably the future of quantifying mortgage asset exposure. And in many respects, the future is already here. Regulatory guidance is forthcoming requiring public companies to quantify their exposure to climate risk across three categories: acute physical risk, chronic physical risk, and economic transition risk.

Acute Risk

Acute climate risk describes a property’s exposure to individual catastrophic events. As a result of climate change, these events are expected to increase in frequency and severity. The property insurance space already has analytical tools in place to quantify property damage to hazard risks such as:

  • Hurricane, including wind, storm surge, and precipitation-induced flooding
  • Flooding, including “fluvial” and “pluvial” – on- and off-plan flooding
  • Wildfire
  • Severe thunderstorm, including exposure to tornadoes, hail, and straight-line wind, and
  • Earthquake – though not tied to climate change, earthquakes remain a massively underinsured risk that can impact MSR holders

Acute risks are of particular concern for MSR holders as disaster events have proven to increase both mortgage delinquency and prepayment. The chart below illustrates these impacts after hurricane Katrina.

Chronic Risk

Chronic risk characterizes a property’s exposure to adverse conditions brought on by longer-term concerns. These include frequent flooding, sea level rise, drought hazards, heat stress, and water shortages. These effects could erode home values or put entire communities at risk over a longer period. Models currently in use forecast these risks over 20- and 25-year periods.

Transition Risk

Transition risk describes exposure to changing policies, practices or technologies that arise from a broader societal move to reduce its carbon footprint. These include increases in the direct cost of homeownership (e.g., taxes, insurance, code compliance, etc.), increased energy and other utility costs, and localized employment shocks as businesses and industry leave high-risk areas. Changing property insurance requirements (by the GSEs, for example) could further impact property valuations in affected neighborhoods.


Converting acute, chronic and transition risks into mortgage modeling scenarios can only be done effectively at the loan level. Rep-lines cannot adequately capture them. As with most prepayment and credit modeling, accounting for climate risk is an exercise in scenario analysis. Building realistic scenarios involves taking several factors into account.

Scenario Analysis

Quantifying physical risks (whether acute or chronic) entails identifying:

  • Which physical hazard types the property is exposed to
  • How each hazard type threatens the property[1]
  • The materiality of each hazard; and
  • The most likely timeframes over which these hazards could manifest

Factoring climate risk into MSR pricing requires translating the answers to the questions above into mortgage modeling scenarios that function as credit and prepayment model inputs. The following table is an example of how RiskSpan overlays the impact of an acute event – specifically a category 5 hurricane in South Florida — on home price, delinquency, turnover and macroeconomic conditions.



Applying this framework to an MSR portfolio requires integration with an MSR cash flow engine. MSR cash flows and the resulting valuation are driven by the manner in which the underlying delinquency and prepayment models are affected. However, at least two other factors affect servicing cash flows beyond simply the probability of the asset remaining on the books. Both of these are likely impacted by climate risk.

  • Servicing Costs: Rising delinquency rates are always accompanied by corresponding increases in the cost of servicing. An example of the extent to which delinquencies can affect servicing costs was presented in our previous paper. MSR pricing models take this into account by applying a different cost of servicing to delinquent loans. Some believe, however, that servicing loans that enter delinquency in response to a natural disaster can be even more expensive (all else equal) than servicing a loan that enters delinquency for other reasons. Reasons for this range from the inherent difficulty of reaching displaced persons to the layering impact of multiple hardships such events tend to bring upon households at once.[2]
  • Recapture Rate: The data show that prepayment rates consistently spike in the wake of natural disasters. What is less clear is whether there is a meaningful difference in the recapture rate for these prepayments. Anecdotally, recapture appears lower in the case of natural disaster, but we do not have concrete data on which to base assumptions. This is clearly only relevant to MSR investors that also have an origination arm with which to capture loans that refinance.

Climate risk encompasses a wide range of perils, each of which affects MSR values in a unique way. Hurricanes, wildfires, and droughts differ not only in their geography but in the specific type of risk they pose to individual properties. Even if there were a way of assigning every property in an MSR portfolio a one-size-fits-all quantitative score, computing a “weighted average climate risk” value and applying it to a rep-line would be problematic. Such an average would be denuded of any nuance specific to individual perils. Peril-specific data is critical to being able to make the LTV, delinquency, turnover and macroeconomic assumption adjustments outlined above.

And there is no way around it. Doing all this requires a loan-by-loan analysis. RiskSpan’s Edge Platform was purpose built to analyze mortgage portfolios at the loan level and is becoming the industry’s go-to solution for measuring and managing exposures to market, credit and climate events.

Contact us to learn more.

[1] Insurability of hazards varies widely, even before insurance requirements are considered.

[2] In addition, because servicers normally staff for business-as-usual levels of delinquencies, a large acute event will create a significant spike in the demand for servicer personnel. If a servicer’s book is heavily concentrated in the Southeast, for example, a devastating storm could result in having to triple the number of people actively servicing the portfolio.

Improving MSR Pricing Using Cloud-Native Loan-Level Analytics (Part II)

Improving MSR Pricing Using Cloud-Native Loan-Level Analytics (Part II)

  1. MSR investors are more exposed to acute climate risk than whole loan or securities investors are. MSR investors are not in a favorable position to recoup cash flows lost to climate disruptions.
  2. Climate risk can be acute, chronic, or transitional. Each affects MSR values in a different way.
  3. Integrating climate scenario analysis into traditional credit and prepayment modeling – both of which are critical to modeling MSR cash flows and pricing — requires a loan-by-loan approach.
  4. Climate risk cannot be adequately expressed or modeled using a traditional rep-line approach.

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