Rights and wrongs of hedging mortgage risk

Mortgage banks

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These days, when US mortgage banks release their quarterly results, it's assumed that at least some firms will report problems with their risk management. And with second-quarter results out this month, some analysts reckon the only question is over the failures' identities, not their existence.

One persistent problem for mortgage banks arises from the risk management of mortgage servicing rights (MSR) portfolios. MSRs are generated when a firm sells its home loans and retains servicing

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