Beyond Affordability: What Florida’s Amendment 3 Could Mean for MSR Values

This piece is adapted from an article originally published by Housing Wire. Read the full coverage here. 

Florida’s push to lower property taxes is being framed as an affordability measure for homeowners. But for mortgage servicers, the proposed change could have significant consequences for income generated from escrow custodial balances and, ultimately, the value of mortgage servicing rights (MSRs). 

Florida Amendment 3, which will go before voters in November 2026, would increase the homestead exemption for non-school property tax levies to $150,000 in 2027 and $250,000 in 2028. The existing exemption for school district taxes would remain unchanged. If approved, the measure could eliminate a substantial portion of non-school property taxes for many full-time Florida residents. 

That may provide welcome relief to homeowners stretched by rising housing costs. It would also reduce the property tax funds that servicers collect and hold before remitting them to local taxing authorities, potentially altering a meaningful component of MSR economics. 

“This is an important issue that frankly hasn’t gotten enough attention,” said Mark Garland of SitusAMC. “If the tax component were cut significantly, that dramatically reduces the amount of funds available in those custodial accounts and the income the servicer makes from holding those funds.” 

Why Property Tax Reform Matters to Mortgage Servicers 

A mortgage servicing asset generates value through several sources, including servicing fees, ancillary income and custodial earnings. Custodial income comes from funds a servicer temporarily holds, including monthly mortgage payments, payoff proceeds and escrow collections for property taxes and homeowners insurance. 

Taxes and insurance typically represent the largest share of these custodial funds. Property taxes may be collected through escrow over the course of the year before being remitted to taxing authorities. During that period, those funds contribute to the economics of the servicing asset. 

Amendment 3 would not affect homeowners insurance premiums or school district taxes. It would increase the exemption applied to county, municipal and other non-school property tax levies. Gov. Ron DeSantis has estimated that the higher exemption could eliminate that portion of the property tax bill for roughly 60% of homesteaded properties by 2028. 

The precise effect would vary by property, jurisdiction and portfolio composition. Still, a broad reduction in non-school tax collections could materially lower escrow custodial balances across Florida servicing portfolios. For servicers with significant Florida exposure, lower expected custodial income could also require changes to the assumptions used to determine MSR values. 

Modeling the Potential Impact on MSRs 

Florida’s rapid home price appreciation makes the issue particularly important. As property values and assessed values have risen, property tax bills have followed, increasing escrow balances and custodial income for servicers. 

Amendment 3 could reverse part of that trend. Instead of assuming property tax collections will continue rising alongside home values, servicers may need to account for a step-down in non-school tax obligations beginning in 2027. 

Portfolio composition will be critical. Servicers should evaluate not only how many Florida loans they hold, but where those loans are located, which borrowers qualify for the enhanced exemption and how much of each tax bill comes from affected levies. The proposal primarily benefits full-time residents with homestead status, while second homes and investment properties would not receive the same treatment. 

The timing also creates an immediate forecasting question. If voters approve Amendment 3 in November, the first exemption increase would take effect Jan. 1, 2027. 

Servicers would then need to determine when lower future custodial income should be reflected in MSR valuations. Depending on portfolio exposure and accounting policies, that could mean changing valuation assumptions, recording a reserve or recognizing a potential impairment before lower tax payments fully appear in custodial balances. 

There could also be operational implications. When a material change affects expected escrow disbursements, servicers may need to conduct an off-cycle escrow analysis to adjust a homeowner’s required payment rather than waiting for the annual escrow review. 

SitusAMC is encouraging servicers to test a range of outcomes rather than relying on a single forecast. Scenario analysis could model property tax reductions of 20%, 50% or 80%, then examine the effects by county, city, borrower type and portfolio concentration. 

“We can deliver bad news. We can’t deliver surprises,” Garland said. “Servicers should test what different property tax reductions could mean for their escrow funds so they understand the exposure before the change takes effect.” 

Florida Could Be the First Domino 

The implications may extend beyond Florida. According to Garland, policymakers in Texas, Georgia and the Carolinas are watching Florida’s property tax debate. If similar measures gain traction elsewhere, servicers could face a broader decline in escrow custodial balances and a more significant adjustment to MSR values. 

Servicing income also contributes to the overall economics of mortgage production. If the value generated by servicing declines, lenders and servicers may have less capacity to offset origination costs, potentially affecting pricing across the mortgage lifecycle. 

Florida Amendment 3 still requires voter approval, and its ultimate impact will depend on implementation, borrower eligibility and local responses. But servicers do not need to wait for certainty before evaluating the potential effects. Portfolio-level scenario modeling, updated custodial assumptions and early operational planning can help institutions prepare for a change that could begin affecting MSR economics within months of the vote. 

Learn how SitusAMC can help servicers evaluate custodial income exposure and model the potential impact of property tax changes on MSR values on our website.