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Forward Builder Commitments protect sales in rising rate environments.
To protect their current and future inventory, homebuilders are entering into Forward Builder Commitments with mortgage lenders.
1. Bad Hedge Ratios: 2. Static Fallout Estimates: 3. No Option Coverage: 4. Old Pricing Levels: 5. Underestimating Locks:
The basis risk between the daily price changes between the coupon and MBS TBA security used to hedge and the execution or pricing source for their mortgages.
Don’t wait until you are out of Options
before you want to use them…
Float Down Lock Pricing Option for Mortgage Bankers
To further reduce the effects of basis risk one should keep the amount of coverage provided by both Treasury Puts and Synthetic Puts (Treasury Call purchases with MBS TBA forward sales) equal thereby keeping the effects of spread widening or tightening on either side of the equation equal.
In this three-part blog series, Mortgage Capital Management (MCM) helps you better understand the top 10 most common mortgage pipeline hedging mistakes that can eat away at your profits.
In this three-part blog series, Mortgage Capital Management (MCM) helps you better understand the top 10 most common mortgage pipeline hedging mistakes that can eat away at your profits. II
At Mortgage Capital Management, Inc. we are frequently asked to provide mortgage servicing rights (MSR) valuation. And we have done so for over 20 years. However this service was typically limited to special purposes or employed to value locked and closed loan pipeline (aka, newly originated loans) for existing clients.
Sample Forward Commitment Quotes
Copyright 2013 Mortgage Capital Management, Inc.
The difference between a highly profitable mortgage lender and a mediocre one sometimes comes down to the methods, tools, and policies used to minimize risk and decrease liability. There are many different ways to run your secondary marketing operation and knowing the difference between the most and least effective is a key differentiator.
To help mortgage bankers determine pricing and hedging for builder commitments on rates and fees, MCM offers a Forward Builder Commitment Quote Sheet.