Mortgage Security Rights ? The right hedge in the modern market.

Posted by Elite Internet Technologies on September 30th, 2016

It’s an interesting indicator of the after-shocks of the sub-prime mortgage scandal that the mortgage security market, to this day, is considered a risk-prone market. During the big crash, ironically, the exact opposite was shown to be the case. A large number of mortgage exchange traded funds plummeted on the first day of the crash. They then rose, equally vertically, soon after on the basis of the fact that the actual mortgages held by these funds were Triple-A rated.

Mortgage security rights as a class are mixed bag, but there’s a big difference in high-value MSRs and what might euphemistically be called the rest of the market. MSRs confer a combination of a useful hedge and valuable cash flow as assets. They have definable values which are generally considered to be reliable within bandwidths.

The other side of the coin, of course, is that this is exactly the sort of market which is prone to high sensitivity in times of market stress. Mortgage rates, after all, do change. The current low interest rate environment is changing, with significant upside in one sense, but also added risk in other contexts.

If you’re looking at MSRs for hedging purposes, also be aware – This is not a small money market. This is very much a core derivatives market, and the value of hedging is based as much on volume as any other particular factor.

The use of MSRs as risk management assets is best demonstrated by a company called United Capital Markets Inc. (UCM). Based in Colorado, this company provides a range of services using MSRs as hedge assets. UCM are specialist financial consultants in this field. They act as financial planning consultants and financing consultants in Denver, providing services for a large range of corporate clients.

If you’re looking at MSR is as a working option for risk management and hedging, they are a virtual template of the current model of best market practice. For more information, and some very useful information indeed about MSR strategies, visit their website here at www.ucm-inc.com .