GMAC Financial Services has set up a risk management subsidiary, Risk Monitors Inc., to advise mortgage servicers.
The mortgage portfolio risk management firm will focus on prepayment speed analyses, according to its co-leaders.
The affiliate of General Motors Corp. will target the top 150 servicers, all of which have portfolios of more than $1 billion, said Thomas Eady, a managing director. Potential clients include bank-owned servicers, thrifts, mortgage companies, and insurer-owned companies, he said.
Mr. Eady will run the unit with Richard Harmon, also a managing director. The two industry veterans worked at J.P. Morgan & Co. until late last year when the banking company discontinued its mortgage operations. Risk Monitors was launched in February.
"Hedging recommendations will be part of our services," Mr. Eady said in a telephone interview, "but we will also help servicers analyze hedging recommendations by Wall Street firms and other consultants."
Though large servicers often have their own analytic models, Risk Monitors will offer prepayment models based on actual loan portfolios. Traditionally, analytic models to predict the speed of loan prepayments are based on Federal National Mortgage Association or Government National Mortgage Association loan pools, Mr. Harmon said.
These models are too specific, Mr. Harmon said, and do not prepay at the same rate as portfolios held by servicers. Actual servicing portfolios contain a variety of loan types, which perform differently than Ginnie Mae loans, for example.
Smaller and midsize servicers can reap the benefits of analytic tools that are too costly for them to buy, Mr. Eady said.
But a servicer can be too small to benefit from Risk Monitors' services, Mr. Eady said. A company with less than a $1 billion portfolio would have to spend more to analyze the portfolio than it could save, he said.
A Financial Accounting Standards Board rule change now requires mortgage servicers to recognize both purchased and originated servicing rights on the balance sheet. Before FAS 122, only purchased servicing rights were on a servicer's books.
"FAS 122 forced everyone's attention on accounting risk and has people taking a look at hedging ideas," Mr. Eady said. "When most of the risk was off the balance sheet, there was not as much focus from a reporting standpoint. Now everybody is focused on that."