Neural Net /AI Fallout Analytics

Both effective pipeline hedging and best execution into the secondary market benefit from accurate loan fallout forecasts. An error of just a few percentage points between the estimate and actual fallout can create serious issues for lenders.

 MCM is expert in quantifying this risk for our lender clients and our fallout analytics is a critical component of our work, and fully integrated into our overall OAS Valuation and Hedge Optimization system.

 For more than 20 years, MCM has been an innovator in the use of Neural Net/Artificial Intelligence tools to better predict the lender’s actual loan fallout, even in volatile markets. More than half of MCM’s current lender clients have sufficient data to make use of these new tools.

 While a fallout error can result in an unexpected gain or loss, in practice we find that most errors lead to losses for lenders. In the recent past, lenders have faced the risk of closing fewer loans during a market rally and that requires a sophisticated approach to pipeline hedging.

 In highly volatile markets, where higher loan amounts increase the impact each loan has on the pipeline (California, Texas, etc.), it can be challenging to estimate pipeline fallout using traditional means. Traditional models work well in less volatile markets, where borrowers are somewhat less sophisticated and loan balances tend to be lower.

 For instance, a lender in the Midwest that originates $100 million per month of mostly government loans with balances under $250,000 is unlikely to see a lot of volatility in its pipeline. We use traditional statistical methods for these lender clients to estimate fallout to within a few percentage points of actual.

 But many of our clients need more powerful tools. Larger lenders operating in hot real estate markets around the country see much higher volatility and correspondingly higher fallout. This can have a critical impact on their hedging strategy.

 Since 2000, we’ve been working on new Artificial Intelligence algorithms that use neural networks to better estimate pipeline fallout for our clients. Over the years, we’ve seen the emergence of much better tools and computers with much higher processing speeds, allowing us to use these new methods to consistently estimate overall pipeline fallout to within 1 percent or less of actual lender performance.

 These tools require a certain amount of the lender’s historical data to be effective, typically a year or two worth of production data.

 In either case, our analysis is based on a very sophisticated model we developed in house that takes into account all factors relevant to the potential for loan fallout, including loan program, purpose, intent, loan amount, status, interest rate, the amount of interest rate change, or pricing change between the time they took the lock and today, number of days in each status and whether the loan timeline has been extended.

 Once the model is in place, we shock the system by moving interest rates and other economic indicators to determine what impact, if any, these changes could have on the lender’s loan pipeline fallout. This allows us to hedge appropriately.

 As with most of our products and services, MCM provides this service to clients working with us through either type of relationship:

Partnership Account

MCM advises clients, who then execute trades, best execution based pooling and delivery. MCM is always available for conference calls to discuss trading strategies and to provide consulting and market analysis.

Guardian Account

MCM does it all, executing MBS trades, providing best execution based pooling and delivery, monitoring pricing and leading a daily client conference call to coordinate secondary marketing activities.

Under either type of business relationship, MCM’s systems, reporting and analysis tools are all available online providing instant accessibility to comprehensive analysis and reports, eliminating the need for the client to load, maintain and manage the software.

Ease of access, ease of use, quick report generation and real‑time “what‑if” scenarios all provide the client with the necessary tools to succeed in the world of risk management. Combined with MCM’s experienced advisors, Hedge Commander allows clients to grow and prosper in any market environment.

Since 1994, Mortgage Capital Management has helped mortgage bankers of every size become more profitable through the use of best-in-class pipeline risk management tools and strategies. Our pipeline risk management services, secondary marketing consulting, and hedging/trading services enable clients to prosper in any market environment.

 For nearly 30 years, the U.S. mortgage industry has called upon Mortgage Capital Management for expert advice and proven technologies all designed to deliver best execution in service to a more profitable enterprise. Our customer list includes some of the most successful firms in the business.

 Viewing the online demo costs you nothing and will shed light on a unique approach to secondary marketing success that you won’t find anywhere else.

 We’re also open to discussing your unique requirements to arrive at a workable solution that will help you achieve your unique goals. Once you see what’s possible with modern financial services technology, your successful future will begin to come into focus. Don’t settle for mediocre when excellence is achievable.

Get the MCM Competitive Advantage! Call us to today to learn more or schedule an online demo: 858.483.4404 x220

Call us to today to learn more or schedule an online demo

Project & Services

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco