Rights and wrongs of hedging mortgage risk
Inherent complexity and accounting rules have combined to make the management of mortgage servicing rights a challenge for US banks. Navroz Patel looks at how the leading US firms are hedging this risk
These days, when US mortgage banks release their quarterly results, it's assumed that at least some firms will report problems with their risk management. And with second-quarter results out this month, some analysts reckon the only question is over the failures' identities, not their existence.
One persistent problem for mortgage banks arises from the risk management of mortgage servicing rights (MSR) portfolios. MSRs are generated when a firm sells its home loans and retains servicing
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