Mortgage Servicing Rights Risk Management

MountainView’s risk management analytics services are for institutions that require a detailed and comprehensive review of their MSR assets in order to optimally quantify and manage their portfolio's embedded risk. Our sophisticated analytics empower you to understand and confidently articulate the potential financial impact of complex interest rate dynamics on your MSR portfolio and the related earnings volatility.

Benefits of MountainView’s MSR Risk Management

MountainView’s MSR risk management services are designed to help you quantify all MSR risks and are beneficial even if you are not currently hedging your MSR portfolio. With this service we will:

  • Assist you with MSR model and sub-model implementation, calibration, documentation and attribution
  • Provide you with an integrated stochastic (OAS) or static modeling framework with access to our proprietary mortgage rate model, which contemplates mean-reversion of primary-secondary spreads
  • Deliver to you robust risk reporting which highlights key rate risk drivers, customized to your needs
  • Assist you with P&L attribution and financial forecasting using our proprietary Hedge Optix™ model
  • Make available to you a sophisticated MSR Transaction Advisory and market back-testing analysis
  • Model various asset and hedge scenarios for you to see the profile that fits your risk exposures, cash requirements and VaR comfort level

MSR Risk Management Services

Our MSR risk management services are comprehensive and include the following components:

Monthly Valuations

We will provide you with a monthly MSR valuation with detailed reporting (cash flow, month-over-month reconciliation, prepayment behavior, etc.)

Value Attribution

Our report provides you with all of the key components to explain the change in value period over period. The report includes complete transparency and disclosure of all model assumptions and output, encompassing cash flows, behavioral assumptions and discount yields/spreads.

Training

MountainView will provide daily training to your staff in utilizing the CompassPoint™ software for an initial period and thereafter as needed. Our training will include data checks, assumption vetting, reporting techniques and other integral features for monitoring the performance of your MSR asset.

SRP Grid Generation

We will provide you with daily, customized SRP grids.

Bulk MSR Trade Back-testing

MountainView will analyze your assumption set against MSR bulk trades that have been executed in the marketplace and reverse solve for yield/OAS.

Trade Back-testing

As part of our service, we will look back at the market movements over your MSR portfolio holdings for the previous 12 months and employ theoretical hedge strategies. The results of this analysis will then be summarized and shared to give you color on the pros and cons of different products in the marketplace. We will also discuss with you rebalancing frequency and the impact that it can have on results.

Prepayment Model Fitting

MountainView will assist you in customizing and tuning your prepayment model to best fit the idiosyncratic tendencies of your MSR portfolio.

Comprehensive Suite of Risk Reports

A critical part of our service is the delivery to you of a suite of reports on a daily, weekly or monthly basis. Our reports will include, but are not limited to, the following measures on both MSRs and hedges:

  • DV01 and % durations
  • CV01 and % convexity
  • Parallel shocked value changes and DV01 changes
  • Key rate durations, DV01s, convexities and CV01s
  • Mortgage basis exposure
  • Risk limits and compliance
  • Value-at-Risk
  • Value change attribution
  • Market data and history
  • Exposure derivative history
  • Cash flow projections
  • Actual versus expected modeling error

MountainView’s analysts will set up recurring calls with you to discuss all aspects of your MSR valuation, performance and risk. We will also provide you with relevant research, such as analysis on the hedge cost using ERIS swap futures, mortgage rate model construction methodology and MSR industry reports.