What Are MSRs and Why They Are Attractive

WHAT IS AN MSR?

• A Mortgage Servicing Right is a contractual right to service a pool of loans - collecting payments, managing   escrow, and handling borrower communication - in exchange for ongoing fees.
• The investor does not own the loan principal or interest; it owns the servicing revenue stream tied to the loans.
• The contractual servicing fee is paid through Fannie Mae and Freddie Mac securitizations, on loans underwritten to GSE guidelines.

WHY MSRs ARE ATTRACTIVE

• Non-correlated to most asset classes, creating outstanding diversification
• Stable cash-on-cash returns with quarterly cash flow
• A valuable cash-flow hedge against rising interest rates
• Provides a potential hedge against inflation