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Contrary to the guidance provided by regulators and industry associations suggesting that mortgage servicing rights (MSRs) be recorded as Level 3 assets, Altamuro and Zhang identify that 25 % of banks classify them as Level 2 assets. This variation in the asset classification of a single asset type provides a unique setting to examine the role of inputs in the fair value measurement process. Altamuro...
This research examines whether the fair value of mortgage servicing rights (MSRs) based on managerial inputs (Level 3) better reflects the cash flow and risk characteristics of the underlying assets than the fair value of MSRs based on market inputs (Level 2). Using mortgage servicing fees as a proxy for the underlying cash flows, we find that the valuation multiples for MSRs based on Level 3 inputs...
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