Managing Investor Counterparty Risk
Friday, March 2, 2012 at 12:38PM
Cameron in Agency, Counterparty Risk, Counterparty Risk, FHLMC, FNMA, GNMA, Raising Capital

Travels this week took Corky to New York and Cameron to Mississippi and the birthplace of Elvis Presley.  Right in the middle of a rural residential neighborhood is a huge Elvis birthplace landmark.  The museum tenant told us during the summer months, the landmark is visited by thousands of Elvis enthusiasts daily.  We’re not huge Elvis fans, but thought it was worth stopping by.  Here’s a photo of the main attraction.

Where Elvis was born.

Today’s topic centers on investor counterparty risk.  Being prepared is paramount for a soldier going into battle.   A weapon, proper clothing, food rations, communication device, and having enough ammunition to engage the enemy is essential.  A trained soldier would never go into battle unless all the champers of his/her weapon are fully loaded with bullets.

So it is with mortgage bankers.  We may not be engaging an enemy, but having an arsenal of weapons that are fully loaded is imperative to compete in the marketplace.  Specifically, having a magazine full of various secondary market investors will help ensure business continuity and mitigate investor counterparty risk.

Since the mortgage meltdown, the landscape of secondary market investors has changed rapidly.  Many mortgage bankers sold to investors that many thought would always be in the market to purchase loans.  Many of the investors are not here today or have dramatically curtailed their purchase activities.  A new group of investors have emerged to exploit the turmoil, offering product variations the large investor conduits are not purchasing. 

What should a mortgage banker do today to ensure their secondary market magazine is fully loaded?

Investor counterparty risk management is a critical question during our Mortgage Banker Risk Assessment (MBRA) reviews.  Being prepared for the unknown and unexpected is paramount in successfully managing counterparty risk.  Always have a diverse group of investors for loan sales.   Being prepared means having all the chambers in the gun loaded.

C. M. "Corky" Watts, CMB

Cameron Watts, CMB

Article originally appeared on C. Watts Mortgage Consultative Services (
See website for complete article licensing information.