10 Steps to Launch Hedging
Best Efforts and TBA-MBS short protect IRLC
Historically TBA-MBS increases gain by 50bp
When rates go up, the value of the pipeline and warehouse goes down. The reason there is a decline in value is that the future cash flow is discounted at a higher interest rate, based on the current market rate, which results in a lower present value.
To protect from interest rate risk, mortgage lenders may receive a "Best Efforts" forward purchase commitment from an investor or enter into a TBA-MBS short position to protect the pipeline. Following are 10 steps to launch hedging. As noted in item 1 & 2, the first things to do include getting educated and hiring a hedge advisor.
10 Steps to hedging with TBA-MBS
1) Learn Hedging Process
Read Dr. Schell's articles
2) Select Hedge Advisor
Contact 3 or 4 Hedge Advisors
(MCT, BKCA, BKOBSS, MIAC, etc)
3) Obtain pre-hedge assessment
4) Launch LOS Status Codes
(lock, processing, submitted UW, approved, CTC, funded)
5) Track Status Code results
(pull-thru by status code)
6) Confirm Pull-Thru values by Status Code (no errors of hedge is wrong)
7) Create Hedging Policy and Procedure
Dr. Schell and Hedge Advisor will help
8) Establish Broker-Dealer Relationships
Hedge Advisor will help
9) Train Management and Accounting about Hedging
IRLC is not MBS
10) START - TBA-MBS hedging -
protect IRLC by selling short TBA-MBS
then sell closed loan into short-term mandatory commitment.
MBS Financial Services offers the following areas:
Growth Strategy – We can help you plan and execute a growth strategy.
Hedging & Pipeline Risk Management - Dr. Schell can help explain how hedging functions, the benefits of hedging, and the risks associated with the activity. See blog posts.
Executive coaching - Leadership is a learned skill. Dr. Schell can teach you to be an amazing leader, an effective manager, and an inspiring coach that can foster a vibrant culture.
Accounting Services – Dr. Schell, CPA, leads the accounting services team to become your outsourced accounting department. This alternative makes more and more sense for companies wishing to focus on their core business but want trustworthy accounting and financial reporting support.
Dr. Andy Schell, DBA (Ph.D.), MSML, MBA, CPA/CFF, CMB
Dr. Schell is CEO, Managing Partner, and Co-Founder of Mortgage Banking Solutions and MBS Financial Services ("MBS"), based in Austin, Texas. Dr. Schell is known for his ability to turn "vision into reality" and "chaos into order" as he finds creative solutions to the challenges his clients face addressing Revenue Stability, Technology Enhancement, Financial Management, and Workflow Efficiency.
He has 4 decades of experience as a strategist directing the activity of both small and large groups of employees including mortgage lending activity at Bank of America. His leadership knowledge extends from his hands-on experience and his academic training in his MBA, his master's degree in leadership, and his doctoral work to examine employee dynamics given leader stimulus.
To find out more information on MBS Services, please click HERE
Find more information at
DoctorSchell@MBS-Team.com ; (512) 501-2812;
Doctor Schell the Profit Doctor