Mortgage Servicing Rights (MSR)

Written By
Paul Tracy
Updated July 31, 2021

What are Mortgage Servicing Rights (MSR)?

Mortgage servicing rights (MSR) is an arrangement by which a third party promises to collect and disseminate mortgage payments in exchange for a fee.

How Do Mortgage Servicing Rights (MSR) Work?

Mortgage payments are processed continually over the entire term of a mortgage. These ongoing administrative duties -- called MSRs -- include collecting the monthly payments, allocating interest and principal, managing insurance costs and reserving property taxes. Third-party entities often agree to assume a lender's MSR for a fee. 

For example, let's say that John borrows a $100,000 mortgage from Lender ABC. The mortgage has a 30-year term and a fixed rate of 5%. Each month, John sends Lender ABC a payment that includes both interest and principal. Five years into the mortgage, Lender ABC decides that it doesn't want to pay employees to process mortgage payments anymore. Instead, it decides to transfer its MSRs to Company XZY. Under the terms of the agreement, Company XYZ agrees to process all the remaining mortgage payments in exchange for a fee.

Why Do Mortgage Servicing Rights (MSR) Matter?

By transferring its MSRs, a mortgage lender can devote more of its resources to originating and disbursing new mortgages. It is important to recognize that the third party that assumes the MSRs does not get to keep the mortgage payments, but passes them back to the lender.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Mortgage Servicing Rights (MSR).
Be the first to ask a question

If you have a question about Mortgage Servicing Rights (MSR), then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Mortgage Servicing Rights (MSR), then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Mortgage Servicing Rights (MSR)

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms