Analyst: Timing of Rate Dip Bad for Servicers

With mortgage rates falling to their lowest level in six months in mid-March, some lenders may face an unpleasant impairment timing scenario when they report first-quarter financial results.Mike McMahon of Sandler O'Neill & Partners said in a report that if rates remain low at the end of the month, lenders will likely have to report impairment to the value of their mortgage servicing rights. But lenders that rely upon loan production gains to offset servicing losses may be in a bind, because loan applications taken in March in most cases won't be funded until April or May, meaning that loan sale gains will be deferred until the second quarter. Mr. McMahon said lenders that have been laying off loan production employees aggressively in anticipation of higher interest rates may be particularly vulnerable to the impairment problem.