How to Choose a Mortgage Hedge Advisor

Mar 18, 2021 | Mortgage Hedging

Updated: December 12th, 2024

When you’ve reached the next level of your growth as a mortgage lender, and you’re prepared to take the next steps, you will need to find a trusted partner as your hedge advisor. It’s a very exciting time to think of all the opportunity, but quickly you will find all services are not alike…

Use these tips to find the right advisor, expand your business, and ultimately increase your profitability. You want to ensure that you’re not just partnering with any firm, and to select a mortgage pipeline hedge advisor that will grow with you, by offering the expertise of a one-stop shop, focused on all your capital markets needs.

In this article, we’ll provide the important questions to ask that will help you select a reliable hedge advisor and support your company’s long-term success. We’ll also review key differentiating characteristics and services, only found in a full-service hedge advisory firm, that will put you ahead of the competition.

Table of Contents – What to Look for in a Mortgage Hedge Advisor

1. Flexibility and Customization

Is the hedge advisor willing to understand my business needs to provide me with a customized service experience?

You know your business better than anyone and every lender has different needs. When searching for the right hedge advisor, you want to find a firm that is willing to meet you where you are.

Consider your short and long term goals so you can determine if the hedge advisor of your choice is able to grow with your business over the years. Whether you want some hand-holding or if you want to be educated enough to one day be completely autonomous, a good hedge advisory firm should be able to support you in whatever goals you have for your particular business.

A successful partnership that is formed with a hedge advisor is one that is sustainable, becoming stronger and more useful with time as the advisor gets to know your business and is able to guide you through every stage of growth. In order to grow with your business, find a hedge advisor that offers both best in class services and software.

Lastly, look for a commitment to service in month-to-month contracts. One of the hallmarks of a hedge advisor willing to work with you with flexibility and dedication is month-to-month contracts. Month-to-month contracts show that a company is willing to win your business every month and ensures that you don’t get stuck in a long-term commitment with a company that you no longer want to work with.

2. Great Testimonials and References


Does the hedge advisor offer any testimonials, case studies, or references?

When you are considering a hedge advisory firm, finding someone who’s already a client with the firm is a great start. You will be able to get a first-hand account of the services and software. Reading case studies and testimonials can also make the decision easier.

A superior hedge advisor firm will be first and foremost concerned with the experience of their clients. If this is true, you will find the hedge advisor will have systems in place and specific departments dedicated to the success of their customers.

The purpose of partnering with a hedge advisor is to be supported in your business. When you onboard with a hedge advisor, there is much for the hedge advisor to learn about your business, and there may be some education that you want to receive from your hedge advisor.

As you do your research, determine how focused the hedge advisor is on educating their clients. Are they fully transparent? Do they encourage their client’s autonomy? Or are they trying to keep the knowledge for themselves so that clients will be dependent on them?

Transparency is an important quality to research in a hedge advisor. Does their reporting provide loan-level detail? Do their reports give lenders color on their loan sales? Will they show you the characteristics they use to value your MSR portfolio?

Ask current clients what their onboarding and post ramp-up experience was. How was the support they received? Was it an easy process? How much extra attention is paid to clients in the form of intimate support?

Also, ask about software support. How does the hedge advisor handle their technical support? Have current clients had any experiences with lapses in the functionality of the software? How was it handled?

3. Comprehensive Services and Software

Can your hedge advisor provide additional services or added value, in addition to hedge advisory services?

A good hedge advisor will help you with mandatory executions, but a great hedge advisor will help with every aspect of your business, auditing, and improving your company’s systems all across the board.

When you search for a hedge advisor, you want to make sure they are a one-stop-shop. After all, you don’t want to have to partner with several companies and create more work for you, when you can easily partner to meet all of your needs.

An excellent hedge advisor will provide additional services to lenders including MSR services, rate sheets, lock desk, and much more. You can use the helpful checklists below to ensure you have all that you need to grow into a full-service capital markets department.

Hedge Advisor Services Checklist 


Hedge Advisor Software Offerings Checklist

 

Why Pick a Hedge Advisor with a Lock Desk?

Partnering with a hedge advisor that features an outsourced lock desk division benefits lenders because it gives the hedge advisor oversight to the lender’s data, which affects the lender’s hedge position.

If there is bad data flowing into a lender’s LOS, then it can have negative effects on a lender’s pull-through rate calculations.

Additionally, a hedge advisor with a lock desk will have a greater perspective on improving your secondary department processes because they will be aware of the industry-standard best practices for rate lock workflows. They will also have greater overall expertise in the major LOS and PPEs throughout the industry.

Partnering with a hedge advisor for lock desk services, in addition to hedge advisory services, will also make your onboarding process much more efficient. Sometimes you can even begin working with a hedge advisor as a lock desk client to help expedite your ride to mandatory executions.

Through outsourcing partial or all of your lock transactions, you allow the hedge advisor to get to know your business. The hedge advisor will, in turn, help you determine what you need to move to mandatory and aid you in that transition through this avenue of service.

4. Technological Innovation & API Integrations

Is your hedge advisor continuously being innovative and keeping up with available API integrations?

Partnering with a hedge advisory that is a pioneer of technology and integrations is the key to having the edge over your competition in the secondary market. Look for a hedge advisor that is innovative and consistently breaking new ground.

The digitization of the secondary market is developing at rapid speeds. That’s why it’s important to partner with a hedge advisor that has the dexterity to keep up with and, at times, exceed the pace of growth. Having this edge in a partner will help you exceed as a lender not just during ordinary times, but especially during periods of market volatility when innovative solutions can make or break your business’s success.

Why Secondary Market APIs Are Differentiators

Automations allow users to focus more on building relationships and not so much on technology.

An API, also known as Application Programming Interface, is a software intermediary that allows two applications to talk to each other.

APIs are the way of the future. The more API integrations a hedge advisor has within their loan pipeline management software, the more seamless your experience will be when you transact business with correspondent lenders during your day-to-day business. This will save you more time and money as time goes on.

For example, if a hedge advisor is fully able to integrate with Fannie Mae’s pricing and execution API, they gain instant visibility of live Servicing Marketplace® (SMP) pricing from each of their servicing partners for loan populations of any size directly within their loan pipeline management software.

Government-sponsored enterprises (GSEs), also known as agencies (Freddie, Fannie) offer integrations to bring more efficiency, value and added profitability to their sellers. A great hedge advisor should take full advantage of these integrations to help their clients.

The automation that API integrations provide reduce market risk through real-time executions. They also reduce input errors by seamless data entry and save time improving efficiencies for lender clients.

It is a hedge advisor’s fiduciary duty to seek the most favorable position for all clients. So if there are API integrations available that can help clients save on efficiency or profitability, it’s their duty to ensure those are available.

Hedge Advisor Innovation Checklist

So, how can you tell if a hedge advisor is innovative?

Here’s a checklist to help you in your questioning.

  • Do they have integrations with loan origination systems and product and pricing engines?
  • Do they have integrations with agencies and investors?
  • Do they have automated tri-party agreements during Assignment of Trade (AOT) transactions in their loan pipeline management software?
  • Do they offer real-time pricing and automated loan commitments for optimizing best execution for agencies such as Fannie Mae and Freddie Mac?
  • Do their integrations allow for transactional data from Fannie Mae and Freddie Mac to be securely sent back to your loan pipeline management software?
  • How helpful have they been to their clients during periods of market volatility?
  • Do they have several accolades for their technology and innovation?
  • Do they have softwares and integration functionality that is exclusive to their products?
  • Do they have mobile applications for their software?


If you answered yes to any of these questions when researching your potential hedge advisor, it’s highly likely that this hedge advisor will be able to provide you additional savings, profitability, or efficiency gains not typical of average hedge advisors.

Technological advances in the secondary market save lenders in many ways. For example, lenders save BPS by assigning trades to investors and avoiding pair-off fees with assignment of trade technologies. Other gains are in efficiency, where time is saved and manual processes are automated, creating hours per week in administrative tasks.

6. Vendor Connections and Network

Does your hedge advisor recommend other vendors beyond their own services to find solutions for your business?

Lastly, when you’re looking for an excellent hedge advisor, you want to know what their relationship is with other vendors in the secondary market. When you develop a relationship with a hedge advisor, they ought to be extremely connected within the secondary market. If they don’t have the answer to a question themselves, they can easily connect you to an expert who will.

A great hedge advisor will pride themselves on referring their clients to appropriate third party vendors in order to help lenders advance their business and reduce costs.

When asked by a client for support, a great hedge advisor will go above and beyond their own scope of business to find you a solution.

Are You Leaving Profitability and Efficiency on the Table?

So many secondary marketing folks are struggling to grow their business and/or prepare for times ahead when it is necessary to stay in front of the market.

MCT clients find they are improving profitability and efficiency beyond their peers. Use our new mortgage calculator to see your potential profitability and efficiency when using MCT software and services.

This mortgage calculator will use your metrics to provide a custom report to show how your business can do more with MCT.  

Do More with MCT!