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Two Firms Expand Hedge Services

In today's economic environment, most eyes are trained on credit risk. But with rates once again falling and many lenders reporting impairment to the value of their servicing rights, there is a need to focus on managing interest rate risk as well.

Two firms recently announced programs to help lenders do that.

Compass Analytics, San Francisco, is releasing analytics to hedge mortgage servicing portfolios and pipeline service-release premiums, and at the same time the firm is launching an MSR hedge advisory service to support lenders in their MSR and SRP hedging activities.

The new analytics are released as a separate module available in CompassPoint Version 1.4.0 and the MSR portfolio advisory services will be offered in conjunction with strategic advisory services from Kent Westerbeck of Westerbeck Risk Management, Westmont, Ill.

The MSR Analytics and Advisory services will leverage CompassPoint's MSR duration and convexity analysis, the company said. It will also complete Compass' suite of MSR hedge instruments, including valuation, performance analysis, and reconciliation.

"The release of Version 1.4.0 marks the culmination of Compass' long-standing vision to provide the mortgage industry the first fully integrated mortgage hedge platform from origination through servicing," said Rob Kessel, managing partner for Compass, in a news release. "We look forward to expanding our longstanding hedge advisory services and we are particularly pleased to have the support of Kent Westerbeck who brings broad servicing hedge perspective and experience to help servicers who have recently faced unprecedented challenges due to adverse market conditions."

Mr. Westerbeck, president of Westerbeck Risk Management, has 35 years experience in the banking industry and is a veteran of LaSalle Bank/ABN Amro, where he was a senior executive responsible for managing interest rate risk management. He said in the announcement that servicers have long needed a straightforward and understandable means of assessing MSR's exposure to changes in market conditions so that risks can be properly hedged.

"This is particularly true during this period of unprecedented movements in mortgage basis," Mr. Westerbeck said.

Westerbeck Risk Management provides interest rate measurement and management advice for mortgage servicers and managers of overall financial institution balance sheet risk.

MountainView Capital, Denver, also has created a new unit to provide hedge advisory services. MountanView Risk Advisors will be led by Gregory Harris, who has more than 19 years experience in hedging MSR risk, most recently as manager of the MSR hedge program for Washington Mutual's more than $500 billion portfolio.

The company said that MVRA will advise clients in every aspect of building and running hedging programs, from the identification of asset risks, program development and hedging strategy to the implementation of specific trading tactics, attribution of results and program oversight.

MountainView said its move into the hedge advisory space complements the firm's MSR brokerage and third-party valuation services.

Credit risk managers have been in big demand lately, but with interest rates where they are today, experts in hedging servicing rights also should be in hot demand today as well.

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