When is selling best efforts the smarter move for your business?
- Limited Servicing Options: If you can’t service loans and no mandatory servicing-released market is available.
- Illiquid Markets: When market conditions are too illiquid to find a suitable hedge candidate.
- Volatile Fallout Rates: If fallout varies wildly and interest rate sensitivity threatens unmanageable pair-off costs or unhedged losses.
Even in the face of volatile fallout, your success hinges on the accuracy of your model assumptions. If your fallout behavior is well-modeled, you’re already ahead. In fact, your model assumptions would have to be off by 25% for a mere 0.25 price difference to make best efforts and mandatory execution break even.
The takeaway?
The better you know your fallout trends and position your coverage, the better you can navigate today’s challenges. Are your assumptions up to the task? Let’s dig deeper together!
> > As featured in Les Parker's TMSpotlight "Follow" daily newsletter: Bessent re-inverts the yield curve.
