Hedging Considerations for Secondary Market Trends | CMBA Panel Presentation by Phil Rasori

Panel Venue: Westin St. Francis Hotel

This is our recap of the first of two different panel sessions Phil Rasori participated in at the California Mortgage Bankers Association (CMBA) 45th Annual Western Secondary Market Conference in San Francisco at the Westin St. Francis Hotel from July 19 – 21, 2017.

Mr. Rasori’s presentation discussed two recent secondary market trends including increasing granularity in the pricing of the mortgage asset and challenges for derivative asset accounting.

The panel covered topics such as capital markets, MSR liquidity in the government space, common security considerations, the proliferation of loan exchanges, counterparty governance, and more. Rob Chrisman of Chrisman LLC moderated the panel; panelists included Phil Rasori of MCT, Doug Mayer of Resitrader, and Mike Carnes of MIAC.

Getting Started at the Western Secondary Conference

The session was well attended with over 100 people filling most of the wide audience seating, welcoming in the first day of the conference. The three panelists and their moderator addressed the audience from a raised podium. Rob Chrisman facilitated and asked a variety of engaging follow up questions of the panelists.

The subject matter was fairly segmented between the three panelists, with Doug Mayers of Resitrader discussing the rise and case for loan exchanges, Mike Carnes of MIAC discussing MSR liquidity, and Phil Rasori of MCT focusing on recent developments in pricing granularity and the associated effect on hedge strategy. However, all played off each other and the interrelationship between market factors on their various subject areas as they took their turns.

View the Presentation Slides from Phil Rasori

CMBA Western Secondary Panel Session Overview

We hope you enjoy this recap of the presentation from Mr. Rasori. If you still have questions or would like to dive deeper into the information, we encourage you to reach out to your MCT representative or contact us.

Mr. Rasori’s presentation focused primarily on two recent secondary market trends:


SECONDARY MARKET TREND #1: As lenders have gotten better at transferring data, investors have gotten better at analyzing and assimilating that data into price.

What makes the TBA so liquid is that it is such a generic security, but this is changing due to the variety of spec payups entering the market. This started with the Fannie Mae cash window but is now flowing through to the aggregator rate sheets and eventually to the borrower. A spec payup is when the end buyer is willing to adjust the price based on specific characteristics relevant to their purchasing strategy.

Hedge strategy has traditionally included coupon slotting – for instance a 4 and 5/8 note rate would be treated the same as a 4.5 because they would ultimately be securitized the same way. This is being challenged by those spec payups entering the market, causing issues with duration for formerly slotted note rates. Duration is the price sensitivity used to calculate the hedge ratio. Typically as going down in coupon means going up in duration.

REMEDY: The case for note rate specific durations is increasing. Pay attention to this trend in your pipeline, whether it is your head of capital markets or your hedge advisor. This has really only changed in the last 12 months for lenders that are selling primarily to the aggregators. As better data continues to come through, price granularity and spec payups can only be expected to increase.



SECONDARY MARKET TREND #2: Indicative pricing levels are no longer completely representative of execution levels.

As aggregators move to bid tape execution they generally fade their corresponding mandatory rate sheet or direct trade pricing, which has a negative effect on the accuracy and utility of Mark To Markets (MTMs).  MTMs are a good window into profitability down the road, with utility beyond just derivative asset accounting.

This divergence between indication and execution levels has caused what some think is the early stages of a crisis in derivative asset accounting, which requires the open locked pipeline to be marked to market. These expectations and hard accounting not being met cause huge problems when the execution is not the same.

REMEDY: MCT is in the process of working with investors to bring bid tapes into MCTlive! to show true bid tape asset value for MTM purposes.

“This system is called the Bid Auction Manager (BAM) that we are unveiling today and plan to roll out over the coming weeks for all investors that are interested.” – Phil Rasori, COO


Learn more about secondary market trends and mortgage pipeline hedging:


About Phil Rasori

Mr. Rasori is a recognized thought-leader in capital markets operations within the mortgage banking community. His areas of expertise include complex financial modeling, computational dynamics, and linear programming for operational optimization. He developed the ground-breaking mortgage pipeline hedging algorithms that form the foundation of MCT’s HALO Program today. Mr. Rasori has functionally led MCT operations since 2005 and ascended to his current role as COO in 2007.

Learn More About Phil Rasori