“Optimized” Secondary Marketing
-to make the best or most effective use of (a situation, opportunity, or resource).
MCM’s Systems and Consulting services seek to provide the best possible outcome from your mortgage pipeline, i.e., the highest possible profit at the lowest possible volatility over time. Hence, we optimize everything!
MCM’s systems that employ Optimization techniques:
- Total Sale Optimization: Best Execution – MCM employs a goal programming system’s engineering approach to make sure all available executions, pooling opportunities, mandatory, AOT, Co-issue, and Bulk pricing are evaluated to arrive at the highest possible sale pricing across all potential executions. Hence, we not only find the highest price for each loan, but for the entire group of either closed or locked loans evaluated.
- Investor Spread Analysis – MCM provides a daily review of correspondent investors pricing levels relative to the pooled coupon to illustrate whether it is a good or bad day to sell to investors. For example, every day the price from investors for a 4.25% note rate is evaluated versus the TBA price of a 3.5 coupon to see if the spread has widened or tightened.We use mean reversion as a gauge over both a ten day and 23 day moving average to assess pricing. Hence, by checking the spreads for each product and coupon one can determine whether today is a good day to sell loans to investors.
- Market Volatility & OAS Spread – in a similar fashion to the investor spread analysis we evaluate options volatility for both Puts and Calls on the 10-year Treasury to determine whether it is a good day to buy options. The same for OAS spreads to TBA current coupon – here we evaluate whether spreads are wide or tight which provides our clients with information on whether to buy calls and create a synthetic Put or buy Puts outright on the 10yr.
- Value at Risk Hedge (VAR) Optimization – MCM employ’s implied market volatility and an OAS scenario analysis framework to calculate the Optimized hedge position given the current mix of trades and pipeline exposure. The system determines how much coverage and what type is needed to minimize the risk presented by a client’s pipeline to changes in interest rates and market volatility.
- Base Pricing System – MCM’s pricing system has been engineered to price all originated loan products by coupon level to the execution likely to be used to sell the loans at the predetermined profitability level. The system takes into account market rolls, delivery timelines, hedge costs, maximum and minimum cash invested, and current TBA levels to arrive at the optimized pricing level for each loan rate by lock period.
- Scenario Analysis – MCM provides a complete separate system outside of its normal processing environment for clients to explore alternative strategies for hedging the current pipeline. A client can add or subtract trades of any type, change trades, add or subtract closed or locked loans, edit loans, change market assumptions and generally explore alternatives before executing a position strategy.
- Computational & Data Structures – MCM employs state of the art computational algorithms, data base management techniques and cloud computing to ensure the accuracy, speed, and availability of all systems.
- OAS Hedge Ratios – MCM determines hedge ratios and recommendations using an OAS approach that minimizes estimate error over the entire shock horizon not just one point. In addition, this approach takes into account servicing value changes and fallout estimate changes as the market increases or decreases.
- Fallout Analysis- MCM utilizes Neural Net technology to accurately forecast what the probability of fallout will be on a loan level basis. Over time this method produces superior results.
© 2019 Mortgage Capital Management, Inc.