Our Services At-A-Glance
BULK & FLOW TRADING
Bulk & Flow Trading
IMA’s Trading Services’ objective is to enable lenders to continuously optimize the liquidity, value and returns of their mortgage assets. Our strength is our experienced trading and analytics teams working together as one and seeking to provide:
Efficient Transactions for both bulk and co-issue sell side and buy side representation
Best execution pricing and analysis
MSR hedging solutions
Analysis of co-issue vs. aggregator executions
Pipeline optimization for pricing and execution
Experienced advisory support in the decision to distribute or retain MSR assets
Customized strategies designed to produce higher yields and less volatility
Comprehensive transaction management
End-to-end compliance support and oversight
Much of IMA’s success in obtaining and fulfilling transaction-related engagements is attributed to its experience and expertise in all phases of the transaction process including analysis, deal structure, marketing, and negotiations. This proven success and in-depth understanding of the valuation process and interacting market dynamics drives IMA’s brokerage and valuation practices.
Incenter’s valuations team provides valuations and benchmarking to hundreds of clients every year. Because we trade MSRs, we know exactly what the fair market values are at any given moment. We have an active trading desk that interacts with mortgage servicers across the country daily, and we utilize the information from that desk along with many other market analytic providers to gain as much insight into the value drivers within the mortgage servicing space as possible. Our clients represent all aspects of the industry from clients with just a few million in UPB in their portfolio to clients who are servicing close to one trillion in UPB.
Incenter has analyzed and modified nearly every aspect of our MSR Valuation Model, including the current coupon model, primary rate model, delinquency model, and the models described below to create an analytically driven and supportable MSR Valuation Framework that tracks the traded MSR Market.
Cash Flow Model
Incenter Mortgage Advisors creates a bottoms-up MSR cash flow model based on customer feedback and market data. Typically, our valuations include a “generic” set of mark-to-market cash flow assumptions applied by market participants to get a mid-market bid on a portfolio. When there is evidence and reason to do so, Incenter can utilize a customer’s internal economics for MSR valuations— for example, in mark-to-model approaches to valuation.
Incenter uses a prepayment model tuned to generic market prepayment speeds for an initial valuation. These can include prepayment speed adjustors by state or by origination channel. As each servicer has unique servicing strategies and portfolio performance metrics, Incenter tunes the prepayment model for each customer over time, based on their actual prepayment rates. Incenter updates its prepayment model on a monthly basis to capture changing primary rate dynamics and other assumptions provided by our prepayment model vendor.
Option Adjusted Spread (OAS)
Incenter uses OAS to derive discount factors for the model’s cash flow projections. Incenter derives these OAS from actual, traded MSR (bulk and flow transactions) to create a market-driven OAS assignment based on individual portfolio characteristics. These OAS assignments can be adjusted to reflect individual investors’ internal hurdle rates or ROE, but generally represent market-level discount factors.
Incenter’s customized solutions provide each client with a specific, targeted-servicing asset valuation, and a hedge designed to maintain that value through all different rate environments. The asset value can take into account the servicer economics (actual cost to service, late fees, floats), or can be based upon fair value, generally accepted assumptions for the asset. This enables clients to create a program that meets their goal: whether it is to maintain GAAP earning and reduce earning volatility, or meet targeted return levels and protect expected asset cash flow.
Curve risk and mortgage basis are the most effective and efficient ways to hedge the MSR asset. Incenter’s MSR asset valuation is constructed with a libor/swap-based curve. Using swap-based instruments allows the valuation to emulate the underlying curve where most of the exposure exists.
Measuring the risk of an MSR portfolio involves a detailed analysis of all of the Key Rate Durations derived from our OAS modeling of the asset. Our OAS model utilizes 256 paths through the polypaths model, along with prepay speeds from the Espiel (AFT) prepay model tuned to client portfolios as well as overall market trades.
Incenter is active in trading Ginnie Mae MSR and can incorporate very specific economic items within the hedge construction to correctly model the actual MSR exposure for our client.
AnalyticsEveryone in the business uses the same basic analytics tools for determining MSR valuations and creating reporting. Because they’re tools, the quality of the analyses depends on who is using them. IMA’s analytics teams are among the most experienced in the business. We work with each client to craft the appropriate analytics road map . given their particular MSR requirements and objectives.
We deploy a broad suite of industry standard MSR valuation tools including static, stochastic (OAS) and hybrid modeling techniques.
Ad hoc Solutions
For example, we can run detailed asset analyses relative to key rate exposure, as well as critical assumption stress testing (including but not limited to cost to service, prepayment speeds, yields, spread and discount rates).
Reporting & Compliance
Our analytics team supports our clients with a host of reports for use by MSR managers, counterparties, internal and outside auditors, and regulatory bodies.