Hedge Analytics & Advisory

Understand the forces that impact your loan pipeline and hedge against losses.

The primary objective of the secondary marketing department is to deliver loans for sale into the secondary market on a consistently profitable basis. Hence, the trading and hedging activities performed by our clients are designed to minimize the risks associated with the loan origination business while maximizing gain on sale.

The fact is, managing pipeline risk is not a simple task. Is it rocket science? It is if it’s done right.

Mortgage Capital Management has developed a new, distinctively different Pipeline Risk Management paradigm. Our process worked extremely well over the years and especially through the pandemic and is now being applied by lenders of all sizes across the industry.

Our scientific approach to hedge analytics borrows from the option-adjusted spread (OAS) analysis common to large institutions managing portfolios of mortgage-backed assets. It’s a measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option.

Embedded options are provisions included with some fixed-income securities that allow the investor or the issuer to do specific actions, such as calling back the issue. Lenders that had options in their hedging strategy prior to the pandemic made out handsomely, while those that did not saw volatile earnings swings.

The analysis can be complex, but the results are impressive for MCM clients. We arrive at our results through the use of a proprietary, cloud based, or secure offsite, server-based Pipeline Risk Management software that offers 24/7 accessibility. No one in the industry comes close to the power we’ve built into our system. 

MCM provides our analytics and services through two different types of relationships:

Partnership Account

Clients execute MBS trades, best execution based pooling and delivery, and manage the Pipeline Risk Position; however, MCM is always available for conference calls to discuss trading strategies and to provide consulting and market analysis.

Guardian Account

MCM executes MBS trades, provides best execution based pooling and delivery, monitors pricing and leads a daily conference call to coordinate secondary marketing activities. Under this relationship, we work to train your staff to take over the management responsibility when ready.

In both cases, our services keep pace with our client’s efforts, providing continuous support and advice from expert MCM advisors. Further, our advice is not generic, but rather, it’s tailored to the specific needs of our clients.

From the beginning of each client relationship, MCM immerses itself in our client’s unique circumstances, including management objectives, existing capabilities and pipeline risk. This results in a unique document called the Pipeline Hedging Objective.

 The purpose of this document is to outline Sample Client’s mortgage pipeline interest rate risk management process. In addition, this document discusses the various categories of risk inherent in the loan origination business and summarizes the methods used to manage these risks. This approach allows MCM Senior Advisors to pinpoint issues, create goals and work together with the client to create efficiencies.

 Risk management service fees are typically based upon a monthly retainer plus a percent of volume – an agreement that automatically allows for changes in market conditions and pipeline variations. The results are excellent mortgage pipeline interest rate risk management and optimized secondary marketing.


 Is your firm in need of a distinctively different approach to managing pipeline risk?

 To find out if MCM is right for you, give us a call. We will conduct a preliminary analysis of your operations and determine if we can increase your profits and stabilize your earnings. If you are ready to move beyond best efforts execution levels or your existing methods of pipeline risk management need help, and your volume is over $10 million per month, you are likely a great candidate for MCM’s services.

 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

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