Manage Non-QM Risk
With Greater Precision

Optimal Blue helps lenders price, analyze, hedge, and trade non-qualified mortgage (non-QM) assets through CompassPoint and CompassEdge. Together, these capabilities provide greater visibility into risk and support more informed execution decisions across the secondary market.

Price Discovery

Optimal Blue’s product, pricing, and eligibility engine (PPE) captures a substantial share of non-QM lock activity, representing about 75% of total market volume¹. Each day, the Optimal Blue PPE application programming interface (API) prices a representative portfolio of loans across all available non-QM best-efforts investors. The resulting median base prices are recorded across the entire note-rate stack for three non-QM categories: debt service coverage ratio (DSCR), bank statement, and full documentation loans. Jumbo loan prices are calculated using the same methodology.

Using these prices, CompassPoint’s cash-flow pricing model establishes an option-adjusted spread (OAS) each morning for each note rate against the current secured overnight financing rate overnight index swap (SOFR-OIS) curve and SOFR swaption volatility surface. Non-QM asset pricing is then updated continuously throughout the trading day as the swap curve and volatility surface change, giving hedgers real time visibility into market-driven price movements.

Risk Analysis

CompassPoint generates stochastic durations, convexities, and dollar value of a basis point (DV01) measurements for each non-QM note rate every 15 minutes, helping hedgers monitor changing rate sensitivity throughout the trading day. Prepayment and delinquency vectors are produced by Andrew Davidson & Co. (AD&Co) LDM 4.0 model, which supports non-QM attributes.

Hedging

Optimal Blue supports a range of hedge instruments for managing risk across non-QM pipelines and non-QM servicing portfolios. Hedge composition is mostly determined by execution strategy. For example, a forward commitment with an established credit box can shift pipeline interest-rate and credit exposure into lock-volume and pull-through risk. In these cases, Optimal Blue volume analytics can help lenders determine an appropriate forward-commitment level to minimize pair-off exposure while simultaneously committing bulk as overflow.

For bulk strategies, hedgers may manage positions with a blend of to-be-announced securities (TBAs) and Eris Swap Futures. CompassPoint and CompassEdge support both instrument types. CompassPoint also supports CME Treasury Futures as a hedge instrument.

Optimal Blue analytics indicate that non-QM assets may diverge from TBAs at the short end of the curve, primarily because of differences in prepayment-driven negative convexity, as shown in Figure 1. TBAs can address the underlying mortgage exposure, while Eris Swap Futures or Treasury futures can help align key rate durations at shorter tenors. This combination gives hedgers greater precision when managing non-QM risk.

Loans are marked-to-market using Optimal Blue PPE for best-efforts pricing. The best-efforts-to-mandatory spread is established by comparing actual sale execution prices with the best-efforts mark-to-market value at the time of commitment.

CompassPoint and CompassEdge allow lenders to manage non-QM and adjustable-rate mortgage (ARM) positions separately from agency positions. Because these assets may require different hedge strategies, separate position management gives hedgers clearer visibility into exposures and gain-and-loss performance. This structure supports more precise risk monitoring and decision-making.

Trading

Optimal Blue’s Resitrader platform supports a comprehensive set of standardized non-QM fields aligned with those available in the Optimal Blue PPE. Lenders can use these fields to include non-QM loans on bid tapes distributed through Resitrader or share tapes directly with investors outside the platform for evaluation.

This capability supports consistent, high-quality data delivery across channels and gives investors greater visibility into non-QM loan attributes. It also supports broader non-QM execution opportunities, including ongoing partnerships with investors to enable mandatory bidding for these loans.