Vice-President, Head of Index and Analytics at ICE Data Indices
Vice President Product Management – Data & Analytics of ICE Mortgage Technology
Watch the replay of our webinar to learn how ICE is bringing innovations to market that can help boost efficiency across the mortgage ecosystem.
ICE has announced the launch of a suite of U.S. residential mortgage locked rate indices, the ICE U.S. Residential Rate Lock Index Series. Aram Flores, Vice-President, Head of Index and Analytics at ICE Data Indices, spoke to Lisa Fiondella, Vice President Product Management – Data & Analytics of ICE Mortgage Technology on what the indices offer to participants across the U.S. mortgage lending and mortgage-backed securities market.
Lisa: Could you give us some background on how securitized mortgages fit into the broader fixed income landscape?
Aram: Securitized residential mortgages comprise about a third of the U.S. fixed income market. That’s a significant portion. It means they have a large weighting in many fixed income portfolios - not just institutionally, but also in many Americans’ retirement portfolios.
Lisa: These new residential mortgage indices are transaction-based. Why is that significant?
Aram: Existing mortgage rate indices are often based on surveys and can quickly become outdated. The ICE indices are calculated daily and will track the average interest rate of new residential mortgage applications from ICE Mortgage Technology (IMT) which processes nearly 50% of U.S. residential home loans. Many of the rate-locked applications that the indices are based on then become closed mortgage loans, which are purchased by the Government Agencies and securitized. This means the indices can act as a forward-looking indicator of new origination for mortgage-backed securities. Using observable loan applications provides a more comprehensive, accurate and timely reflection of current residential mortgage interest rates.
Lisa: I understand these indices are IOSCO compliant. What are the implications of that?
Aram: ICE Data Indices adheres to the IOSCO Principles for Financial Benchmarks, and, as the Administrator of these indices, has applied its IOSCO framework so that these indices may be useable for financial instruments. This is a clear differentiator from other offerings, which can enable wide ranging applications. For example, these indices could conceivably be used to hedge exposure to rising mortgage rates, or to support a futures contract or other derivatives. Because these indices are transaction-based and draw from such a significant pool of mortgages, market participants can use them to trade, hedge and transact with greater precision.
Lisa: I’d like to draw out the data side. These indices provide a huge amount of new data which offers strategic intelligence and helps customers manage risk. At IMT, we have the largest electronic network of mortgage stakeholders in the industry. This means we can provide far more transparency, timeliness and an established delivery system to help clients across the mortgage lending and mortgage-backed security market.
Can you give more detail on the types of market participants who might be interested in these indices?
Aram: It’s a broad group that includes loan originators, banks and participants in the mortgage-backed security market who deal with risk and analytics. These indices also provide data that economists or equity analysts would find insightful. Lisa, exactly what types of mortgages do these indices track?
Lisa: The ICE U.S. Residential Mortgage Rate Lock Index Series tracks 10, 15, 20 and 30 year first-lien and subordinated mortgage applications on both single-family and multi-family properties. The indices include new purchase, construction and refinance applications for conventional mortgage loans, jumbo loans and those submitted under U.S. government programs, including the Federal Housing Administration, U.S. Department of Veterans Affairs and the Rural Housing Service of the U.S. Department of Agriculture.
ICE Mortgage Rate Lock Index futures offer market participants a more precise hedging tool for residential mortgage interest rate risk. The suite of contracts includes Conforming and Jumbo futures contracts which track the ICE U.S. Conforming 30-year Fixed Index and the ICE U.S. Jumbo 30-year Fixed Index respectively.
Indices that track the average rate at which U.S. residential home loans are locked each day and can provide forward looking insight for investors and lenders.