How to Hedge Mortgage Pipeline Risk

• Jun 28, 2020
• By Jill Homan

Mortgage lending continues to represent a significant portion of business for most banks serving consumers. These home loans provide an important revenue stream and help depositories stay competitive, not to mention serving a vital societal need. To reduce market risk and make more loans, it is common for institutions to sell groups of mortgages to a purchasing agent such as Fannie Mae or Freddie Mac. These government sponsored entities (GSEs) package the loans with like mortgages for sale in the secondary market. The time between the loan going on the lender?s books and its sale to the purchasing agent is called the ?mortgage pipeline.? Why hedge the mortgage pipeline? Managing the pipeline is a critical part of mortgage lending that calls for skilled management to keep risk unde...

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