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Fixed Income & Data Services/Fixed Income/Fixed Income Monthly Report
March 2024

A new dawn for the U.S. mortgage market

Chris Edmonds
Chris Edmonds
President, Fixed Income & Data Services

ICE

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Chris speaks to his observations at ICE Experience 24
With NYSE’s Trinity Chavez

U.S. housing regulators have long faced a herculean task: analyzing a vast range of disparate data with varying reporting lags to ensure a sound and equitable market. We know what a failure of risk oversight can look like - take the 2008 credit crisis when data on the true credit profiles of many mortgage-backed securities (MBS) was simply unavailable. Alongside this, there are new risks - like climate risk, which already threatens the provision of home insurance in many states.

For those tasked with oversight of the system, a lack of centralized, timely data around mortgage risk means detecting early signs of stress is difficult. Now ICE - with our proprietary data, technology, and expertise in digitizing markets - is uniquely placed to tackle the challenge. Picture this: the ability to access a holistic risk scorecard on a given property or loan, which collates hundreds of metrics around origination, servicing, and climate risk. Our data is updated frequently, some of which will soon be available on an intraday basis, and all borrower data is de-identified. At a high level, this means we expect to significantly improve pricing accuracy and prepayment modelling for the +$12 trillion mortgage-backed securities market.

To better understand these advances from ICE, we can break them into three segments: origination data via our U.S. Residential Mortgage Rate Lock Indices, comprehensive mortgage data via our Black Knight acquisition, and ICE’s climate data.

First, our rate lock indices provide a daily indicator of U.S. mortgage rates - tracking the average rate at which new residential home loans are locked each day. This suite of ~80 indices calculate both negotiated and APR borrowing rates, with subindices available that segment - for example - by borrower attributes such as FICO and Loan-to-Value ranges. In a market accustomed to weekly survey-based data, this granularity and timeliness is key. These indices could show early signs of stress in a specific credit cohort, or new trends in refinancing rates, enhancing both official and private sector risk management.

Second, our acquisition of Black Knight allows us to combine loan origination data with detailed mortgage performance data - which means our platform provides an unmatched view of national mortgage health. Regulators will have access to more timely, comprehensive data on which to base policy decisions. And investors can benefit from a variety of research, modeling, and risk-management applications.

Finally, our climate data offers an increased level of transparency by linking geospatial climate, economic and demographic data to specific municipalities, loans and securities. This linkage of risk to specific instruments is a differentiator - allowing more precise analysis and risk pricing. Importantly, this data could play a crucial role in balancing the respective property risk that private and government insurers bear, as the frequency and severity of climate events rises.

Regulators, consumers, and investors could gain substantial benefits when ICE realizes the full potential of our mortgage offerings. Achieving our vision would mark a new dawn for the mortgage market - one where risk pricing is more precise, greater confidence means greater breadth and depth of MBS liquidity, and where the opacity of a security is no longer a factor in a future crisis.

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WEBINAR

When, why and how AVMs drive business performance

Wednesday, April 10 | 2 p.m. ET

Real estate valuations continue to be complex and ever-evolving- especially with proposed regulatory changes and unpredictable market dynamics. Creating an effective valuation strategy is vital to managing risk and streamlining operations. Attend our complimentary webinar to learn all about the world automated valuation models (AVMs) from the ICE Valuations Solutions team.

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