The highly fragmented nature of mortgage asset components has historically translated into a lack of granular data for investors. Intercontinental Exchange (ICE) aims to change that.
The $11 trillion U.S. mortgage-backed securities (MBS) market is one of the world’s largest, most liquid fixed-income markets, with average daily trading volumes of hundreds of billions of dollars. Nevertheless, valuations and modelling of MBS performance have remained necessarily broad, historically, given the lack of granular data on the assets underlying these securities. The DESK spoke with Julian Grey, executive VP of Data & Analytics in ICE’s mortgage data business, to discuss how access to better data can help investors, mortgage loan buyers and securities issuers.
Despite its size and importance to global capital markets, the MBS market remains constrained by a largely fragmented mortgage data landscape. How is ICE planning to tackle that challenge?
The short answer is by integrating datasets that shed light on the entirety of the end-to-end housing finance ecosystem.
The asset class essentially boils down to two components: property and mortgage. The mortgage generates cash flows on the value of the property and is often packaged into bonds, loans and other instruments.
ICE’s robust, granular, loan-and property-level data, gives us visibility on both, from pre-origination throughout the entire lifecycle – including on the other side of prepayments.
Pulling together MLS listings, public records, loan-level mortgage origination and performance data and more can make for incredibly fragmented data collection.
Done correctly, it also paints a collectively nuanced and valuable picture of market risk and opportunity.
It sounds like an immense effort. Are there particular challenges in bringing all those datasets together?
Historically, data, analytics, technology and data science have been seen as separate pillars. Increasingly over the last five to 10 years, those have come together.
Today, technology creates massive amounts of data, while also facilitating the drawing of insights from that raw knowledge. Plus, the sheer size of the datasets we are working with today makes mass analysis possible in a way that has never existed before – but only because we have the technology to do so.
This is not to say data is being hoovered up indiscriminately. Mortgage information is particularly sensitive and, at least in the U.S., highly regulated. After all, the property is not only the most important asset a consumer will ever own; it is their home. As a result, we need to be exceedingly thoughtful about that information, anonymising as necessary, with specific provisioning around each of these datasets.
ICE has deep expertise in data privacy and security. By using data science and emerging technologies, using skills we have developed over time around data transparency, we’re able to avoid compromising the integrity of the individuals involved, while still combining the data into a useful single view for varied market participants.
Access to data increases transparency and allows people to make better decisions, faster. Investors can make better buy, hold, and sell decisions around mortgages and property, which increases liquidity in the residential mortgage market, giving consumers more options.
How do different investors potentially use this data in different ways?
Not everyone has the capacity to use massive amounts of data and analytics to drive decisions. That said, broadly speaking, when they do, they’re better off. Firms that focus on high-frequency data and leveraging a lot of data to avoid internal biases create significant strategic advantages.
The data in the housing sector is slow moving compared to exchange data, because performance on a mortgage typically updates once a month. We’ve made great strides on this at ICE, having introduced daily mortgage performance data to the market a few years back.
When you’ve got event-driven data, which fixed income tends to be, the speed at which you get that information ahead of market competitors is potentially an advantage, more than the frequency.
How can market participants use ICE’s mortgage data to draw insights?
The possibilities are nearly endless. New insights provide readiness for market shifts, such as understanding what can happen after an election, or if interest rates drop, or unemployment spikes, insurance coverage becomes untenable, or home prices soar once again.
The data allows us to be prepared for situations which may not be the consensus. Who knew five years ago that property insurance would be such a hot topic? We didn’t, but we were collecting every piece of housing-related data that we could access, so we were prepositioned to talk about the effect of climate on mortgages and affordability.
How can this improved data help capital markets participants better manage risk?
Even prior to the Black Knight acquisition in 2023, ICE had rich MBS pricing and liquidity data, as well as mortgage origination data on the majority of the U.S. market. Post-acquisition, we now have property and mortgage performance-related data as well, both of which are key for MBS decision making, whether issuing, buying or selling.
Our interest rate information is a huge determinant of what’s going to happen in the near term. Performance information is critical as to whether a loan or bond may see a default or a payoff. Knowing the true current value of the asset securing a mortgage is key to understanding risk.
We’re giving investors more transparency and new tools to help manage investments in mortgages. ICE recently issued a futures contract which uses that mortgage rate information, and we expect to see more instruments supporting this asset class. We’re only now scratching the surface of what is possible given the combination of so much wide-ranging housing data.
