Hedge Management

Servicers, large and small, can benefit from hiring an experienced and independent third-party to evaluate portfolio risk. BlackRock Solutions' Hedge Advisory & Execution services allow clients to leverage BlackRock's state-of-the-practice risk management methodologies, mortgage expertise and market intelligence. Services are offered on two levels: a comprehensive retainer-based service and a stand-alone menu of individual services. The following list describes some of our capabilities and services.

Valuation

  • Static and OAS-based market value calculations for servicing portfolios using client assumptions.
  • Hedge valuations using third-party marks for securitized hedge instruments and analytical pricing for unsecuritized instruments.

Capital Markets-Based Servicing Valuation

  • Capital markets-based valuation to substantiate their valuation in accordance with industry regulations and directives such as the Interagency Advisory.
  • Valuation of MSRs is benchmarked off levels of similar IOs.

Risk Reporting

BlackRock Solutions offers comprehensive risk reporting for the servicing asset and hedges, including the following:

  • Duration and Convexity
  • Basis risks, including mortgage-LIBOR spreads, volatility, and OAS
  • Prepayment duration and key rate durations
  • Interest rate scenarios and horizon expected return analysis
  • Weighted-average-life equivalent prepayment speeds
  • Greeks (option delta, gamma, vega)

FAS 133 Advisory

BlackRock Solutions offers analyses used for a FAS 133 program, including:

  • Bucketing servicing according to the "similar asset" test
  • Hedge effectiveness testing
  • Correlation analysis

Servicing Market Surveillance and Intelligence

BlackRock Solutions produces a monthly servicing multiple survey, showing multiples for over 120 servicing categories versus those of the rest of BlackRock Solutions' client universe. These statistics are presented in a manner that ensures confidentiality.

Horizon Expected Return Analysis

BlackRock Solutions can project the expected return, including principal, interest, and reinvestment of cash flows, for all servicing and hedge instruments over any time horizon specified by the client. This analysis is a useful tool for estimating hedge cost and for financial planning.

For more information on Hedge Management: Contact Us.

Additional Information