Mortgage bond platform aims to reach smaller lenders

Agile, a partner company to advisory firm Mortgage Capital Trading, has formally rolled out a platform aimed at allowing a wide range of companies to automate certain securitized loan trades.

The broad availability of the technology known as RFQ (Request for Quote) follows a test of the automation in conjunction with “to be announced” mortgage-backed securities trades, which lenders use to hedge the difference between locked and market rates at the time of loan delivery. In that test, the platform reduced call volume by 46.5%, increased overall productivity by 25%, and improved execution by 1.6 basis points worth of savings on the cost of a trade, said Ian Miller, chief marketing officer at Agile.

The reduction in call volume is significant for more moderately-sized lenders in particular because they’ve had less access to automation than larger competitors and have relied heavily on phone contact to conduct the TBA trades that are commonly executed in government-related markets. Large lenders can use a couple pre-existing platforms used by primary broker-dealers, but net worth and volume requirements can be barriers to the use of this technology for small mortgage companies, noted Phil Rasori, chief operating officer at Agile

“Historically, because the small- to mid-sized lender wasn’t approved with these primary dealers, they would have to use the phone. By creating a competitive platform that primary and regional broker-dealers can participate in, we’re seeing that we can democratize the TBA trading,” Rasori said in an interview.

MCT, an Agile client, worked with 250 of its lender customers to test the technology between January 2020 and January 2021. The company compared figures before and after implementation during this period to calculate its findings, measuring metrics like aggregate calls from the trading floor and the average volume of bids handled per user. Trades were either conducted by MCT’s clients, or by the company on their behalf. The 46.5% decrease in call volume reflected a drop from 880 instances of phone contact to 471. Productivity was based on an increase in the TBA trade volume per user from $201 million in January 2020 to $253 million in January 2021.

Given that the testing occurred in the middle of a pandemic, the platform proved helpful to lenders facing the kind of unexpected market disruption that can lead to margin calls, Rasori noted. Regulators can require margin calls when a company’s net mark-to-market position falls below a certain threshold.

“It was good to have access to as many broker-dealers as possible then because every basis point counted,” he said.

How long of an on-ramp period is needed before the platform can be used depends largely on broker-dealer approvals, according to Rasori.

“Some of the dealers are very good. They can approve you within a week, providing you have the necessary documents,” he said.

Agile has supported 261 financial institutions which have exchanged 95,600 quotes since Jan. 1, 2021. Broker-dealers on the platform include BMO Financial, BOK Financial Securities, CMG Securities, Daiwa Capital Markets, ED&F Man, Huntington Securities, Janney Montgomery Scott, JVB Financial Performance Trust, Raymond James, South Street Securities, StoneX, and Stifel, Nicolaus & Co.

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