Hedging with ALM First
Large Client Base
Connected Trading Desk
In the “nickel and dime” mortgage origination business, you need to grab income from every possible source. As such, it is important that you are not using Mandatory or Best-effort commitments to manage interest-rate risk. Even though those approaches have been industry standard, there are reasons more and more financial institutions are hedging their own mortgage pipelines.
Hedging your pipeline with ALM First can provide key advantages:
- Less expensive: It can be more cost effective to manage the interest-rate risk on your own or with our help. Financial institutions utilizing Mandatory and Best-effort commitments with the agencies are overpaying to have them hedge the IRR and provide liquidity. By decoupling the liquidity source from the hedging, ALM First can reduce the cost in two primary ways: calculating your specific pull through rate (calculated daily with real-time data, thereby hedging more efficiently), and achieving better securities execution with the Street as a $21B fixed income asset manager.
- Increased income: Most institutions sell their loans at closing to avoid the associated duration/interest-rate risk. In our model, those loans are 100% hedged with TBA MBS at closing, allowing you to hold them on the balance sheet while the appraisal is still considered current (generally up to 120 days) to earn interest income without the risk of rates moving against you. By having the liquidity source separate from the interest-rate hedging, you also gain increased flexibility to sell to whomever offers the best daily price versus being tied by a forward commitment/rate lock.
- More clarity: Our advanced analytics and reporting system gives you insights into your pipeline on a daily and monthly basis. Our analytics also give management greater transparency into lenders that might need training on best practices for locking loans which will help to reduce fall out.
- Reduced effort: Our turn-key solution means you simply send us a daily pipeline file and then can deliver loans to whomever give you the best bulk execution. In addition to the daily and monthly performance reports, we also prepare the GL accounting report to help reduce effort for your finance team.
- Capital Markets exposure: As a $21B asset manager who deals with the primaries, we have an active fixed income trading desk. We will share market insights and reports to keep you abreast of developments in the mortgage markets. Because we only work with other insured depositories, we are very familiar with the issues and challenges facing your institution.
As an example, utilizing $10mm a month with hedging efficiency/analytics (shorting TBA MBS vs. best-efforts rate locks) and 90 days of (hedged) carry on the balance sheet could net out to roughly $500k annually. All your institution does is send us a daily pipeline file and we do the rest (pipeline analytics, hedging, execution, performance reporting, accounting entries, etc.)
Contact us for more information, access to our webinar series, and even a no-cost trial phase with our pipeline hedging.