NOVAPRIME, a technology company that provides an intelligence platform for mortgage lenders, has teamed up with Tradeweb to improve the Novaprime Coverage Solution. Tradeweb is a major player in the fixed income securities sector, one of its largest areas being the securities market supported by TBA mortgages (MBS), where it experienced average daily volumes of 248 billion dollars last year. Both use the Canton blockchain network, which allows automated workflows for cover for mutual customers in the two platforms. Consequently, this partnership helps automate mortgage risk management.
Understanding what is involved, you have to explain it.
Mortgage lenders and coverage
As context, the MBS agency is titles provided by mortgage issued or guaranteed by Freddie Mac, Fannie Mae or Ginnie MAE. Their programs have scheduled liberation dates, and the TBA market (advised) implies trade in emissions before anyone knows precisely what mortgages will be included. Despite the apparent lack of information, it works because MBS emissions are very standardized. Consequently, the TBA market is a kind of term market for mortgages used for coverage.
Thus, when a mortgage lender concludes a contract with a house buyer, he can potentially cover this loan immediately. This would generally involve selling a TBA contract which locks the interest rate. As a rule, this requires relatively manual repetitive tasks, which are automated using this blockchain -based solution.
Let’s say that a bank has concluded a handful of mortgage loans totaling $ 5 million for 30 years to 7%. If the rates reach 7.5%, the lender is sitting on a mortgage which is now worth nearly $ 250,000 less. If they sell it, this risk is covered and instead by the investor. The key point is that the bank wishes to carry out mortgages and not take the total risk of interest rates.
How does it work
Novaprime creates an intelligent contract for each mortgage. It brings together all the loan data on its information platform on the loan and combines this with the commercial data of the Tradeweb platform. Novaprime Smart Contracts interacts with those of Tradeweb, for data modeling purposes, then the intelligent contract automatically executes certain steps.
“We believe that loans should be engaged and delivered on the day of closure, and the automation of risk management, including coverage, is as essential to our objectives as the loan commitments themselves,” said Linus Ptrén, CEO of Novaprimime. “This collaboration transparently incorporates the best commercial electronic execution technology in Tradewweb with our intelligence platform on loans, an important step in the increase in efficiency and cost savings for lenders, and ultimately return ownership to the property more affordable.”
The Blockchain’s approach for MBS extends beyond these two companies. Figure Technologies has set up a business creation company with consumers to prove the advantages of the use of blockchain within the framework of the original process. He created an alternative blockchain register for mortgages, which tries to break the monopoly of seas in the United States. The company was involved in several titles programs supported by assets. In addition, the figure wants to create a TBA style market, but for unskilled mortgages.
