Mortgage Capital Trading reports that it has been awarded a patent for the security spread commitment used in MCT Marketplace, its mortgage asset exchange.
The security spread commitment transforms loan auctions, turning shadow bids into executable prices, the company says in a release.
Loan buyers and sellers use the security spread commitment to transact before counterparty approval, vastly increasing liquidity while giving sellers confidence in the price execution of new buyers.
“For decades industry players have imagined a time when buying a loan would be as easy as buying an item on eBay,” says Phil Rasori, COO for MCT and architect of the security spread commitment. “Arduous counterparty approval processes always blocked the way – but no longer. By committing to a price spread against the underlying security, buyers and sellers can confidently transact before undertaking mutual approvals. We’re tremendously proud this innovation has been recognized by the U.S. Patent Office.”
Through security spread commitments, any interested buyer on MCT Marketplace can make an executable bid on any mortgage loan up for auction.
In the case of a buyer winning an auction from a new counterparty, the price is converted to a security spread against a mutually agreed security price.
The price of this security continues to move with the market while mutual approvals are completed, routinely expediting the process from months to an average of five days.
Following approval, the security spread is converted back to a fixed price and the transaction is completed.
Through tools like the security spread commitment and MCT’s AutoBid bid tape pricer, investors are efficiently bidding more loan collateral than ever before, and sellers are finding best execution and liquidity that would otherwise be missed.
“Gone are the days of a finite set of approved investors, not knowing who has an axe and incomplete information on who may offer the best price,” says Curtis Richins, president and CEO at MCT, in the release. “MCT Marketplace is the only loan exchange where sellers can receive executable bids from unapproved buyers. Through our patented security spread commitment, MCT firmly holds its position as the gold standard in best execution and moves one step closer to the ultimate goal – when every loan can be priced by every investor.”
Use cases for this groundbreaking methodology extend beyond standard whole loan trades. Security spread commitments can also be leveraged to facilitate transactions on open loans that are still being hedged in a lender’s pipeline. Buyers with specific collateral targets to fulfill, such as CRA, AMI, and other specified pool obligations, can make early offers on loans in a lender’s pipeline via security spread commitments.