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Solving Agency Loan Pool-Level Constraints

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To improve a financial institution’s overall performance, incorporating the secondary market into balance sheet strategies is critical. To do that, lenders and investors buy and sell securities in the secondary market that are collateralized by pooled mortgage loans. Pooling these loans enables them to gain flexibility in managing their long-term interest rate exposures, increase liquidity, manage credit risk, and expand opportunities to earn fee income.1

While pooling mortgage loans may sound simple, it’s not. In fact, loan pool optimization remains one of the most challenging tasks for financial institutions to accomplish effectively. First, lenders face a whole host of rules that servicing buyers and GSEs require lenders to follow regarding the composition of mortgage-backed securities (MBS) pools. Some of these rules include stipulations with respect to credit and volume thresholds.

Second, finding the most profitable combinations of closed-loan inventory to create pools that both meet investor demand and comply with the Securities Industry and Financial Markets Association (SIFMA) pooling minimums and tolerances have largely been a tedious and manual process. After decades of dumping huge amounts of loan portfolio data into massive spreadsheets and poring over them to identify particular loans for specific pools, the mortgage industry clearly needed a faster and smarter alternative.

Leveraging Black Knight’s New CompassPointSM Loan Pool Optimizer

To meet investor demand for longer-lasting mortgage-backed securities (MBS), while considering a lender’s profitability and third-party relationships, CompassSM Analytics, part of Black Knight, has developed a powerful new enhancement within its CompassPoint solution to help solve for agency pool-level constraints. CompassPoint is an industry-leading risk management and loan sale platform for the secondary loan market, helping lenders hedge more than $100 billion of closed loan volume monthly.

This new enhancement uses a sophisticated algorithm that eliminates the manual process of sorting and sifting through closed loan inventory to find the optimal combination of pools that comply with SIFMA pooling minimums and tolerances. Instead, the CompassPoint Pool Optimizer automates this task, helping lenders manage representative credit mix between the GSEs, in addition to managing limits and tolerances imposed by servicing buyers, all while helping achieve best execution.

By automatically incorporating borrower FICO score, property type, property state and other considerations into their search, lenders can quickly and efficiently solve for the optimal combination of pools based on the company’s configurations, SIFMA requirements and other stipulations. This dramatically simplifies complex best-execution analysis and helps to deliver consistent credit across key investor relationships. Available through an API integration, the CompassPoint Pool Optimizer enhancement can be used without the full CompassPoint product suite.

Using the CompassPoint Pool Optimizer, clients can now avoid the headache of manually searching spreadsheets for loans that meet pool criteria, and instead incorporate the preferences of their investor partners with one click.

For more details about how to improve profit margins and reduce risk with the new CompassPoint Pool Optimizer, contact a Black Knight representative today.

1 “Mortgage Banking,” Comptroller’s Handbook, Office of the Comptroller of the Currency, Feb. 2014, p. 3.