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ICE sees early industry support for new U.S. residential mortgage futures

August 17, 2022

Two of the biggest names in U.S. residential mortgage markets - R.J. O’Brien & Associates and Pennymac - are getting behind ICE’s new mortgage futures contracts.

Their support is an important early step in the adoption of ICE’s first futures contracts for U.S. residential mortgages – the U.S. Conforming and Jumbo 30-year Fixed Mortgage Rate Lock Index futures. Based on actual mortgage lending activity across the U.S, the contracts, which were launched in June, offer a more precise hedge for the mortgage industry to manage exposure to U.S. residential mortgage rates.

RJ O’Brien, among the largest futures brokerages in the residential loan origination and servicing space, has already brokered trades in ICE’s Conforming mortgage futures contract.

"The ICE 30-year Conforming and Jumbo Rate Lock Futures are innovative residential mortgage risk management tools,” says John Coleman, Fixed Income Group Director and Senior Vice President at R.J. O'Brien. “For the first time, primary rate exposure – the key mortgage prepayment catalyst – is tradeable for the conforming and jumbo pipeline, for mortgage servicing rights (MSR) and portfolio managers, and universally accessible to nearly all institutions as ICE-cleared futures contracts.”

Pennymac, one of the largest national home loan lenders and servicers in the U.S., has been involved in trading the contract. Pennymac believes ICE’s mortgage futures contract offers a key risk mitigation tool to manage its exposure to primary mortgage rates.

"At Pennymac, we seek to hedge our mortgage production and MSR prepayment exposure using instruments that directly correlate with the underlying market risk,” says Tom Rettinger, Senior Managing Director and Head of Secondary Marketing and Risk at Pennymac. “With the release of the new ICE Rate Lock Futures, we can hedge our exposure to the primary mortgage market. This will be a key risk mitigation tool in our risk toolbox going forward."

The two futures contracts are based on ICE’s U.S. Conforming and Jumbo 30-year Fixed Mortgage Rate Lock Indices which track U.S. residential mortgage loan applications where borrowers and lenders have committed to lock-in the interest rate prior to closing. Daily values for the two indices are published here each day:

"The mortgage futures contracts demonstrate the innovation that can be created when each segment of ICE – across exchanges, mortgage technology and data – come together to design meaningful new products for our customers,” says David Farrell, Chief Operating Officer of ICE Futures U.S. “It is great to see the support of RJO and Pennymac, two of the biggest names in U.S. residential mortgages."