Banks see MSR strain despite strong top-line results

Federal efforts to push rates lower have helped boost mortgage production, but they are also creating headwinds for servicing that are starting to show up in earnings.

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US Bank generated record revenue overall, but in the details beneath that top-line item was a $11 million drop in the valuation for servicing rights, net of hedging. This combined with lower gain-on-sale margins to cause a $50 million drop or 27.8% consecutive-quarter decline in the company’s mortgage banking revenue to $130 million. 

JPMorgan Chase’s net servicing revenue also was down by $43 million from the previous quarter even though the company’s MSR valuation inched up.

MSR valuations can vary by company depending on what their models, operations and portfolio composition are like, but generally servicing metrics seem to be weaker so far in fourth quarter 2025 results.

The range of results

Servicing challenges and downsizing have been showing up in earnings of banks both large and small. A $428,000 pre-tax loss on MSRs was one of two “material adjusting items” Old Second Bancorp reported Thursday. PNC recorded a $5 million MSR writedown, net of hedging, last Friday.

While originations and certain financial instruments can hedge MSR value shifts in lower rate environments, the recent prevalence of unexpected policy moves such as the one that followed an unexpected bond-buying announcement this month can make risk management less exact.

Regions Financial reported a $16 million hedge loss for the fourth quarter of 2025.

“Fourth quarter results were negatively impacted by changes to MSR valuations and net hedge performance,” David Jackson Turner, senior executive vice president and chief financial officer, said during the company’s earnings call. 

Sales playing a role in some servicing results

Independent Bank on Thursday reported what it called a “significant variance” in its net servicing income gains when compared to a year earlier, generating less $800,000 for all of 2025 compared with $9.4 million for the entirety of 2024.

The difference in year-over-year results stemmed in part from a $931 million servicing sale last January in addition to the impact of interest rates on prepayments. The bank also cited the outlook for float, which a recent pronouncement asserting federal preemption could affect.

Despite reporting record earnings Thursday, United Bankshares saw servicing income fall $9 million. The company said related sales helped trim servicing costs by $2.4 million.

One portfolio going up for sale

At least one unnamed mortgage company with loans concentrated in California and Texas was selling servicing rights in the current market at the time of this writing, according to MIAC Analytics. 

The $495.4 million Fannie Mae, Freddie Mac and Ginnie Mae portfolio for sale has a $334,279 average loan size and weighted averages that are as follows: interest rate, 6.705%; delinquency rate, 4.12%; age, seven months; and FICO credit score, 728.

California accounts for 15.94% of the portfolio’s balance and 11.2% by count. Texas represents 11.25% of the portfolio by balance and 12.08% by count.

Bids are due on Jan. 29 by 5 pm Eastern.