GMAC Mortgage, a subsidiary of General Motors Corp., will install risk management software from Risk Management Technologies Inc., Berkeley, Calif.
The Elkins, Pa.-based unit of the automotive giant will use the software developer's client/server system, called Radar RiskManager, to manage its interest rate, credit, and liquidity risk when buying and selling mortgage servicing rights.
Terms of the deal were not disclosed.
GMAC Mortgage's servicing portfolio of 450,000 mortgages is valued at over $45 billion, which includes $4.7 billion obtained in a recent acquisition of servicing rights from STM Mortgage Co., Dallas.
The software is used to balance combinations of assets, liabilities, and risk, so that institutions can receive stable flows of net interest income.
GMAC will use the software for such analyses as determining the impact of credit losses, defaults, or prepayments of mortgages.
"Once we are able to produce such highly detailed information, we will be able to do a more efficient job of pricing, funding, and hedging our business," said Mike O'Brien, president of GMAC Mortgage.
The company's software investment is evidence of how technologies developed for certain applications like asset-liability management are finding new uses in related businesses.
The software, entering its third year on the market, is a relative newcomer compared with the older, more entrenched rivals Sendero Corp. and Interactive Planning Systems Inc., and the more recent Treasury Services Corp.
Risk Management Technologies' customers include Chemiccal Banking Corp., Wachovia Corp., First Union Corp., and international banks Credit Suisse, Zurich, and Sumitomo Bank Ltd., Osaka, Japan.
Most banks use Radar for asset/liability management, said Deborah Williams, a bank technology analyst with the Tower Group, Wellesley, Mass.
But she added that Radar and other software like it "should be able to be used in a lot of different ways."
She expected a trend of more generic "cross-industry technologies" that can be shared by industries such as mortgage and trade banks, insurance companies, and others, because "the financial concepts are the same no matter where you go."
"There is no reason you can't use the technology once the tools are developed," she said.
David LaCross, chairman and CEO of Risk Management Technologies, said mortgage servicing is one of his company's "key areas of focus."
He noted there are many ways that mortgage servicers earn profits besides just servicing cash flows, such as float revenues from holding various impound accounts for prepayments, taxes, and insurance.
The mortgage servicer's "overall business economics involve far more than the instruments themselves," he said.
Residential Funding Corp., a unit if GMAC Mortgage, also stands to benefit from using the software to assemble mortgage packages that it securitizes and sells.
The software could be used for valuing loans that are originated through GMAC Mortgage. Officials said Residential Funding Corp. may use the information to issue mortgage-backed securities and commercial mortgage obligations.
