Novaprime, a data intelligence technology provider catering to mortgage lenders, has entered into a strategic partnership with Tradeweb, a leading force in the fixed income market, to automate risk management in mortgage hedging. The collaboration aims to strengthen the Novaprime hedging solution by leveraging Tradeweb’s vast expertise in the mortgage-backed securities (MBS) sector. Tradeweb, known for its significant presence in the TBA (To-Be-Advised) MBS market, reported an average daily trading volume of $248 billion in this segment last year.
Both companies operate on the Canton blockchain network, which supports the automation of workflows between mutual clients. The integration of this blockchain infrastructure plays a crucial role in transforming manual, repetitive hedging operations into efficient, streamlined processes. This marks a notable shift in how mortgage risk management is approached, particularly through the lens of automation and digital innovation.
To understand the implications of this partnership, it helps to revisit the fundamentals of the TBA market. Agency MBS refers to securities backed by mortgage loans and issued or guaranteed by entities such as Freddie Mac, Fannie Mae, or Ginnie Mae. These securities are typically traded before the underlying loans are fully identified. Despite this apparent lack of transparency, the market functions reliably due to the standardized nature of the issuances. As a result, the TBA market operates as a forward market for mortgages and is commonly used by lenders to hedge interest rate risk.
In practical terms, when a mortgage lender agrees to finance a home purchase, the firm can immediately hedge against interest rate fluctuations. This is usually done by selling a TBA contract that secures a set interest rate. Without automation, these tasks involve numerous manual processes, including calculations and contract preparation. The blockchain-based solution introduced through the Novaprime and Tradeweb partnership aims to automate these steps, reducing the potential for error and improving speed.
Novaprime’s platform creates a smart contract for each mortgage originated. These smart contracts compile loan data on its Loan Intelligence system, which is then merged with trading information from the Tradeweb platform. Through interaction between smart contracts on both sides, the solution models relevant data and carries out predefined actions automatically. This setup enables efficient and timely execution of hedging strategies, reducing risk exposure for lenders.
Executives from Novaprime have emphasized that their vision involves committing and delivering loans on the day of closing. They consider automation in risk management, especially in hedging, to be as vital as loan commitment itself. The collaboration is viewed as a key milestone in bringing together Tradeweb’s electronic trade execution and Novaprime’s data capabilities, resulting in cost savings and improved operational efficiency for lenders. Ultimately, the goal is to make mortgage processes more efficient and housing more affordable.
The broader application of blockchain in the mortgage sector is also gaining traction beyond this partnership. Figure Technologies, for instance, has introduced a consumer-facing mortgage origination platform that utilizes blockchain throughout the process. The company has created an alternative registry system for mortgages, aiming to disrupt the existing monopoly held by MERS in the United States. In addition, Figure has been active in several asset-backed securities deals and is seeking to develop a TBA-style market tailored for non-qualifying mortgages.
This broader industry trend, combined with innovations from players like Novaprime and Tradeweb, suggests a growing shift toward blockchain-powered transformation in the mortgage and finance sectors. The ongoing efforts to automate and modernize mortgage-related workflows could usher in a new era of efficiency, accuracy, and accessibility for both lenders and borrowers.
