Mortgage bond platform goals to succeed in smaller lenders

Agile, a partner company of the consulting firm Mortgage Capital Trading, has officially launched a platform designed to enable a large number of companies to automate certain transactions involving securitized loans.

The widespread availability of the technology known as RFQ (Request for Quote) follows a test of automation in conjunction with "announce" mortgage-backed securities transactions that allow lenders to determine the difference between locked rates and market rates at the time the loan is delivered. In this test, the platform reduced call volume by 46.5%, increased overall productivity by 25%, and improved execution by 1.6 basis points, resulting in savings in trading costs, said Ian Miller, chief marketing officer at Agile.

Reducing call volume is particularly important for medium-sized lenders as they have had less access to automation than larger competitors and have relied heavily on telephone contacts to handle the TBA business that is typically done in government-related markets. Large lenders can leverage some pre-existing platforms used by primary broker-dealers, but net asset and volume requirements can hinder the use of this technology for small mortgage companies, noted Phil Rasori, chief operating officer at Agile

“Since the small to medium sized lender has not been approved with these primary dealers in the past, they had to use the phone. By creating a competitive platform for primary and regional broker-dealers to participate in, we see that we can democratize TBA trading, ”Rasori said in an interview.

MCT, an Agile customer, worked with 250 of its lenders between January 2020 and January 2021 to test the technology. The company compared the numbers before and after implementation during that period to calculate its results by using metrics such as aggregated calls from the trading floor and. measures the average volume of bids processed per user. The trade was conducted either by MCT's customers or by the company on their behalf. The 46.5% decrease in call volume reflects a decrease from 880 phone contacts to 471 times. Productivity was based on an increase in TBA trading volume per user from $ 201 million in January 2020 to $ 253 million in January 2021.

Because the tests took place in the middle of a pandemic, the platform proved helpful for lenders facing unexpected market disruptions that can lead to margin calls, Rasori noted. Regulators can request margin calls if a company's net mark-to-market position falls below a certain threshold.

"Back then it was good to have access to as many broker-dealers as possible because every basis point counted," he said.

How long a start-up phase is required before the platform can be used depends largely on the approvals between brokers and traders, according to Rasori.

“Some of the dealers are very good. They can approve them within a week, provided you have the necessary documents, ”he said.

Agile has supported 261 financial institutions that have exchanged 95,600 offers since January 1, 2021. Broker-dealers on the platform include BMO Financial, BOK Financial Securities, CMG Securities, Daiwa Capital Markets, ED&F Man, Huntington Securities, Janney Montgomery Scott, JVB Financial Performance Trust, Raymond James, South Street Securities, StoneX and Stifel, Nicolaus & Co.

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