Position Reports are a key tool we rely on for accurate market to market valuation, profit margins and long/short positions. The timeliness and accuracy of these reports is imperative so they can have a positive impact on your position or profitability. Following is a list of several factors that affect the usefulness of position reports. Each can present significant issues in the accuracy of your report. An inaccurate report will ultimately have a negative impact on your position and/or your profitability.
Inaccurate trade file data
An inaccurate trade price will impact reported profitability. Inaccurate trade settlement dates will impact the proper month in which trades should be put in and ultimately cause potential trading errors that can impact cash flows. An inaccurate security type or coupon will affect reported profitability and could lead to assignment and/or pair-off problems.
Trades paired out of but not removed from file uploads
Trades paired out of but not removed will immediately cause a position imbalance. This may also then lead to pairing out of the same trade twice that leads back to cash flow issues and reconciliation issues with the Dealer.
New trades not in file uploads
New trades not in the file upload is much like trades paired out of but not removed from file uploads, except in reverse. It creates the position imbalance, but also can create duplicate addition of trades resulting in a short position.
New Program Codes that MCM is unaware of
One of the more common issues we see is new program codes being added and new locks coming in before MCM is aware of the new code. This creates a false short position which can have an impact on profitability.
Missing loan level data on Locked Loans
With missing loan level data, profitability will be inaccurate as virtually every data field MCM requests has a potential loan level pricing implication associated with it.
Incorrect lock date or lock expiration date
Lock date issues can impact the month in which a trade is to be placed or even potentially cause the loan not to be accepted in the upload which leads to a short position.
Loans sold not removed prior to file uploads
Loans that are sold but not removed from the locked or closed file will produce a false long position and can potentially lead to a loan being sold twice or additional trades being executed in error, creating a short position. The impact can be inaccurate profit margins or profitability issues when the short position is rectified.
New locks not in file uploads
If new locks are not making it to the file upload in a timely manner this will lead to a false short position and can ultimately lead to profitability issues.
Incorrect new lock data
This is different from missing loan level data because all of the loan data fields may be populated, however if populated incorrectly it will lead to the same profitability issues or a potential sale to wrong investor. So while it may not impact your position it can have a negative impact on profitability.
All of these items can contribute to inaccurate reports and dely the timeliness of receipt of your reports. MCM has edits in place to catch many of these issues and takes time to review them before the report is released to the client. In some cases MCM repairs the errors and communicates the issue back to the client for repair in the origination/secondary system. This helps to keep positions in balance and profitability marks accurate, but will ultimately lead in delays in accurate reports being released to the client.
MCM also provides a variety of reports for the client to review and catch errors. Examples of those reports are listed below:
Position Reconciliation Report – helps to quickly see net changes to the pipeline and trades file based on loans locked, trades added or paired out of and loans sold.
Trade Reconciliation Report – helps to see the trades that were added and the mark of the trade to see that trade prices were entered properly in conjunction with the security type and settlement date.
New Locked Loan Report – helps to quickly review the new locks that have been entered and the margin or profitability of the new lock to detect pricing errors or locks to incorrect programs.
Total Closed Loan Report – helps to quickly see if the loans that were sold are out of the report on a loan level basis.
MCM is diligent to provide the most accurate reports, but it also requires a responsible partner with a watchful eye to regularly review reports and follow-up on issues that can cause incorrect positions and inaccurate profitability marks. The old saying garbage in garbage out is real when it comes to reliance on risk position reports and expected profitability.
Copyright 2013 Mortgage Capital Management, Inc.