ICE secures backing for first US mortgage future

Intercontinental Exchange has secured the backing of a key US broker and a national mortgage lender for the US exchange’s first US mortgage futures contracts.

Ice said on Thursday it has secured the support of Chicago-based broker RJ O’Brien and US home loan lender Pennymac for the US Conforming and Jumbo 30-year Fixed Mortgage Rate Lock Index futures contracts, which became available for trading on June 13.

Both the firms have been involved in trading the new product, according to ICE which has said the new two new contracts offer a more precise hedge than existing hedging tools.

John Coleman, Fixed Income Group director and senior vice president at RJ O'Brien, said: “For the first time, primary rate exposure – the key mortgage prepayment catalyst – is tradeable for the conforming and jumbo pipeline, for mortgage servicing rights and portfolio managers, and universally accessible to nearly all institutions as ICE-cleared futures contracts.”

Tom Rettinger, senior managing director and head of Secondary Marketing and Risk at Pennymac, said: “With the release of the new ICE Rate Lock Futures, we can hedge our exposure to the primary mortgage market. This will be a key risk mitigation tool in our risk toolbox going forward."

The two futures contracts are based on ICE’s US Conforming and Jumbo 30-year Fixed Mortgage Rate Lock Indices which track US residential mortgage loan applications where borrowers and lenders have committed to lock-in the interest rate.

"The mortgage futures contracts demonstrate the innovation that can be created when each segment of ICE – across exchanges, mortgage technology and data – come together to design meaningful new products for our customers,” said David Farrell, chief operating officer of ICE Futures US.

The support of RJO and Pennymac is significant as ICE seeks to build liquidity in its first US mortgage derivative. ICE has moved aggressively into the US mortgage market in recent years with the September 2020 acquisition of Ellie Mae, the US mortgage software firm, and the May 2022 deal to acquire Black Knight, the US housing tech firm.