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Compass Analytics Readies MSR Analytics
By Ted Cornwell
New York--Compass Analytics, a provider of loan valuation and risk management technology for participants in the mortgage secondary market, is getting ready to enter the servicing side of the mortgage business.
Rob Kessler, managing partner with Compass Analytics, told MSN Bulletin that his company plans to introduce its MSR valuation analytics, in partnership with a major mortgage servicing brokerage firm, around Labor Day.
"We have a couple of engineers on board who cut their teeth on MSR analytics," Mr. Kessler said, explaining why the company is venturing into that side of the analytics game. He also said that an existing provider of this type of technology on the servicing side has scaled back its operation, providing additional room for Compass to grow in the space.
He said that Compass will initially market the analytics to middle-market servicing players, but he also stressed that Compass analytics will be designed to serve the largest mortgage servicers as well.
"I think for us to be viable in the long run, we have to have a viable product for larger servicers," Mr. Kessler said, noting the continuing trend toward consolidation among loan servicers.
Compass will not act as a third-party MSR valuation provider but will rather offer technology that allows a servicer to input their own assumptions and calculate values.
In addition, MSR clients will have access to the Compass library of pipeline hedging instruments.
Mr. Kessler said that Compass is also working to push its pipeline valuation and execution analytics down to loan level detail. A recent integration with Standard & Poor's Levels/Spire credit enhancement service gives Compass users greater insight into loan salability and pricing, he said.
"We are really driving the whole pricing pool level analytics all the way down to the loan level," he said. "We think that is very much pioneering, enabling technology."
He said the recent turmoil in the subprime market illustrates that lenders not only need to hedge their pipelines for interest rate shocks, but also for credit shocks that can lead to price widening. He said the market needs more liquidity and availability of credit hedge instruments. He said it will be a net positive if the subprime crisis does lead to development of more effective and liquid instruments for protection loan pools when credit spreads widen.
"People want to be more on top of their valuations and particularly to how sensitive those valuations are to shocks like credit widening."
During the recent MBA National Secondary Market Conference in New York, the company highlighted the release of its latest version of CompassPoint, which includes integration to S&P's Level and Spire models, loan-level cash-flow valuations and loan-level cash-flow model adjusters.
Mr. Kessler said the new version of the technology enables more advanced loan granularity and modeling to benefit traders, investors and secondary market managers by giving them the ability to bring valuation, duration and convexity analysis down to the loan level.
He predicts CompassPoint will be used to improve secondary market execution and pipeline management.
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