Optimal Blue Invents Formulaic Method to Improve Secondary Marketing Risk Management
– Innovative Metric Delivers Increased Precision for Hedging Mortgage Pipeline Fallout Risk –
Optimal Blue, the leading provider of secondary marketing automation and services in the mortgage industry, recently announced the development of a new model for improved analysis and management of mortgage pipeline fallout risk. Optimal Blue’s continued investment in delivering comprehensive secondary marketing automation solutions has afforded their client base a new quantitative toolset to better hedge pipeline performance.
After back-testing the new model for more than a year, observable results across stratified and non-stratified pipeline metrics demonstrated significant improvements in the estimation of the actual pull-through percentage over the use of standard, conventional formulas. To fully realize the potential, Optimal Blue benchmarked the new metric against common mortgage origination practices to validate that originators can increase the accuracy of pull-through estimates and thereby reduce exposure to interest rate risk.
“When comparing the period before implementation of the new pull-through metrics to the timeframe after, we observed a 45% reduction in position exposure due to pull-through estimation error,” explained Mark Egolf, Vice President of Capital Markets for Capital Bank. “The drop in exposure had a direct correlation with lower volatility in the day-over-day unrealized mark-to-market. “
The new methodology is the result of meticulous testing and consistent validation by dedicated Optimal Blue quantitative scientists and data experts, using the application of queuing theory to the more antequated pull-through calculations that rely on basic funded/lock ratios and status stratification. To discover how the new hedging metric outperforms the strategy employed by standard convention, Optimal Blue has created a white paper resource, titled: A New Metric for Hedging Mortgage Pipeline Fallout Risk.
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