What amount would need to be established as a hedge

Reference no: EM13936398

You manage a $25 million pipeline of jumbo mortgages (loan amounts greater than those Fannie Mae or Freddie Mac will accept) with a commitment period of 60 days. A simple internal model estimates the fallout percent in your pipeline as the following:

Fallout% = .5 + .15(WAC - Market Rate)

WAC stands for the weighted average coupon of the pipeline, which is 4.5 percent. If the market rate in 60 days moves up to 4.5 percent, commitment prices for this rate are $99.5 per $100 of face value, and at a WAC of 4 percent for the pipeline are valued at par. What amount would need to be established as a hedge for this?

Reference no: EM13936398

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