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When mortgage rates rise, this can increase the value of so-called mortgage servicing rights for home loans made at lower rates. These can be retained by the banks or lenders making mortgage loans, but are also frequently sold to third parties, or outsourced to another servicer. When rates are high, servicers can also earn more interest on money sitting in escrow accounts.
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“While we think [returns on equity] could increase, we see only limited upside unless interest rates fall far more meaningfully than we currently expect,” analysts at KBW wrote in a recent note on Mr. Cooper and PennyMac Financial Services.
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