Further insights from the American experience of MERS and the infamous recent cases of banks trying to foreclose properties never the subject of a mortgage charge in the first place are all very illuminating. My task is slightly complicated by the difference between the US and UK laws and the further complication of Mortgage and securities Laws being State originated and not Federal. All good stuff and actually quite enjoyable to study when one gets locked into the obsessive detail.
Anyway heres my typical cut and paste mix and match, I started my spreadsheet model today and hope to develop it to a publishable state in a week or so. It may well be sooner if inspiration strikes and the Gods of Google are helpful in answering well targeted search terms.
So far this morning I have tried.
Transform relatively illiquid, individual financial assets into liquid and tradable capital market instruments.
Allow mortgage originators to replenish their funds, which can then be used for additional origination activities.
Can be used by Wall Street banks to monetize the credit spread between the origination of an underlying mortgage (private market transaction) and the yield demanded by bond investors through bond issuance (typically, a public market transaction).
Are frequently a more efficient and lower cost source of financing in comparison with other bank and capital markets financing alternatives.
Allow issuers to diversify their financing sources, by offering alternatives to more traditional forms of debt and equity financing.
Allow issuers to remove assets from their balance sheet, which can help to improve various financial ratios, utilise capital more efficiently and achieve compliance with risk-based capital standards.
Recording and MERS
Trustee shall apply the proceeds of the sale in the following order: (a) to all expenses of the sale, including, but not limited to, reasonable Trustee’s and attorneys’ fees; (b) to all sums secured by this Security Instrument; and (c) any excess to the person or persons legally entitled to it.
Therefore, foreclosure and REO sales are not “comps” or comparable sales used by appraisers to form an opinion of the value of a normally sold property. That doesn’t mean they don’t affect prices or marketing time: a market full of REO is a market full of existing homes somebody wants to get out from under and will likely undercut other sellers to do so. I have used the term “flood the market” before in reference to REO. I don’t just mean “flood” in the sense of a lot of REO. I mean “flood” the way we used to mean it when our cars had carburetors instead of fuel injectors. If that metaphor doesn’t make sense, we’ll have to let the engineers tinker with it in the comments.
Secondary Marketing Risk Management
A successful mortgage banking company must maximize profits while minimizing the variability of those profits in the long run. With volatile markets, unpredictable origination volumes, and complex new mortgage products, the task can be daunting. Institutions must take a simultaneously optimized and integrated approach to pricing, risk reporting, hedging, pooling, and loan delivery. Otherwise, consistently achieving optimal profits is not possible.
Since 1987, QRM has been partnering with clients and applying modern option theory to all aspects of secondary marketing, in order to manage risk and maximize all-in risk-adjusted profitability. QRM’s Mortgage Banking Practice includes the entire secondary marketing process—from pricing, risk reporting, trade management, pool and hedge optimization, to loan delivery. QRM’s clients have hedged trillions of dollars of mortgage originations under virtually every imaginable market scenario and include over 65 of the nation’s most sophisticated lenders, including the top 10.
QRM clients create optimal secondary marketing strategies that produce a predictable flow of profits limited only by the amount of business coming in and the degree of competition in pricing. Clients accurately price and measure the exposure of all their loan products and use robust best execution analysis to accurately hedge, pool, and deliver those loans. QRM clients make informed decisions which preserve profitability and decrease earnings volatility, thereby increasing shareholder value.
Increase Profitability through Comprehensive Pricing of Loan Products
QRM clients model virtually every mortgage product or related hedge instrument, including all conforming, jumbo, alt-A, sub-prime, hybrid, reverse, interest-only, and other adjustable rate loan types. As part of that analysis, QRM clients model all possible loan delivery options, including mortgage securities, cash trades, whole loan bids, assignments-of-trades, and CMO securitization. Our Trading Analytics Research group is committed to dissecting new financial instruments and passing the best practice modeling methods on to our clients.
Our clients build refined and transparent, profitability-driven loan pricing processes that keep them ahead of the curve. These processes accurately incorporate forward price, interest carry, loan pricing adjustments, base and excess servicing values, hedge costs, overhead costs, and other attributes. QRM clients are assured that their processes for rate sheet-generation truly incorporate comprehensive, all-in analysis.
Precisely Model Rate Lock Optionality in Your Mortgage Pipeline
QRM clients perform precise and comprehensive daily interest rate risk exposure analysis, covering all aspects of their positions no matter the fallout profile, driven by deterministic factors such as the purpose, origination source, or type of product. Clients create parallel, non-parallel, or key rate interest rate shocks using robust option-adjusted spread (OAS) analytics to determine a single-number index of net exposure. In addition, clients perform contingency analysis showing how exposure and hedge position sensitivities change in response to market movements. These processes use the variable quantity option model to measure all the financial properties of a mortgage rate lock, whether the rate lock is a standard, float-down, floating subject to a cap, or path-dependent rate lock. Hedge costs are computed to precisely reflect the different risk attributes of each.
On a periodic basis, our Behavioral Modeling group performs advanced statistical analysis of each client’s actual rate lock-fallout experience to determine the sensitivity of their mortgage pipeline to interest rate changes, and other deterministic variables. Clients then quickly adopt these findings in their framework to accurately reflect their borrowers’ fallout behavior.
Incorporate Best Execution Analysis into Underlying Pricing, Hedging, and Delivery Decisions
Before engaging QRM, many secondary marketing operations find that their best-intentioned analytical packages lack the seamless integration necessary in the fast-paced secondary marketing process. QRM clients incorporate best execution analysis at every step of their process; pricing, hedging, and pooling; from rate lock inception, through loan closing, to the delivery of each loan. Clients are also able to make improvements to the initial execution at any stage in the process.
Our clients’ processes combine the speed, ease, analytical pick-ups, and integration that make optimizing loan selection and trade allocation extremely profitable and efficient. Clients determine the all-in value of alternative loan sale executions, based on current investor prices, buy-down and buy-up factors, attribute-driven guaranty fees, retained servicing preferences, multi-faceted investor constraints, and parameters determining the earliest opportunity for loan delivery.
Accurately and Thoroughly Measure Exposure and Hedge Risk under Any Scenario
QRM consultants help clients identify risk exposures and set a risk policy customized to their needs. Clients build robust hedge, trade management, and loan delivery processes incorporating every delivery-based and cross-hedge instrument that a mortgage bank might trade. Clients generate hedge optimization recommendations that meet their risk policy and trading preferences.
Pool and Deliver More Profitably
Maximizing pipeline value while also taking advantage of investor appetites for specified pools has always been a secondary marketing challenge. QRM clients utilize a powerful rules engine that models their business processes within a rigorous optimization analysis. These rules can incorporate eligibility and aggregation constraints, as well as expected pay-ups, to achieve optimal loan slotting. QRM clients utilize a variety of loan delivery vehicles— security and cash, specified pools, heterogeneous bid packages, and non-conforming securitization (integrating with the client’s Intex CMO Database).
Effectively Report to Provide Business Intelligence Necessary to Actively Manage Risk
Clients not only have access to 200 risk management reports germane to all aspects of secondary marketing and management, they also create custom reports that effectively and concisely deliver accurate business intelligence. Clients use industry-standard Online Analytical Processing (OLAP) and Microsoft Reporting Services technologies to generate customized report books that can be distributed as web pages, Excel files, or Adobe PDFs.
Bank of America Puts Moratorium on All Foreclosures
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