The Benefits of Mortgage Pipeline Hedging

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Mortgage lending is a sizable part of most credit unions’ business, accounting for more than half (51.8%) of the industry’s $1.17 trillion in total loans. Mortgage origination serves a vital member need and provides an important revenue stream for the credit union. To reduce market risk and free up liquidity to make more loans, many institutions sell mortgage loans to a purchasing agent (e.g., GSEs such as Fannie Mae or Freddie Mac), which packages them with like mortgages for sale in the secondary market. The time between the loan application and its sale to the purchasing agent is called the “mortgage pipeline.”

Managing the mortgage pipeline is critical in any economic environment. However, current discussions about the Fed tapering its asset purchase program, and the economy continuing to adjust to Delta variant concerns, are likely to increase volatility in the market. The need to manage interest rate risk is paramount for mortgage lenders as they seek to ensure profitability.