Written by Gregory Bell, as originally published in The Reverse Review.

How many of us believe we are in a data-driven field? In my prior role as a primary market maker, dealer and trader of HMBS, my job function, when stripped down to its most basic level, was to make sense of data—your data: bits of data points from loans, borrowers, servicers, originators and brokers. I did so in an effort to see beyond the numbers and the loans themselves to understand the underlying story they were telling. It is this “story” that resides in the data that ultimately sells your product and determines its worth.

For this very reason, I implore all of you to store every piece of data you can and make it available to others, specifically the investment community. We as an industry can and will figure out what to do with it later. The practice of data-driven discovery is common in most industries and has been taking place in the mortgage industry for quite some time. Greater clarity in the present starts with data; before we can predict the future, we need to clearly observe the present. The benefits of this will be shared by all. In fact, I feel that we as an industry have a moral imperative, an obligation to American seniors, to address the coming retirement crisis, and one way to do so is to provide a better product. We need a stable financial solution, sculpted by data, that serves our customers, thinks long term and is transparent to all.

As an investor, data analysis has enabled me and other market participants to quantify risk and improve the framework of our investment decisions. Like other fixed-income securities, the value of HMBS securities is derived from future cash flows, which are subject to the uncertainty of prepayment risk. The “story” speaks directly to this uncertainty. It is thanks in large part to a better understanding of risk that market participation has undergone a dramatic expansion since the inception of the HMBS program. A key catalyst to this has been the dissemination of loan-level origination and performance data via Intex remittance reporting, which provides a single source of consolidated industry data. Despite suppressed volumes, the market has enjoyed improved liquidity.

However, the investment community needs more comprehensive data. More participants will entice further bank support, which is critical to addressing the liquidity and financing needs of issuers and servicers, specifically as it relates to financing origination pipelines, future principal, interest shortfalls and MCA buyouts. Increased demand will drive tighter spreads and put downward pressure on the current coupon, which I believe will also reduce the predatory stigma associated with the product.

I am frequently challenged by colleagues to explain the subdued growth of the reverse mortgage market in light of overwhelming demographics. This is a question that I often revisit. I believe the answer involves the many constraints that have limited the growth of this industry, and I hope to see them relaxed and even removed as the dissemination of more data leads to greater transparency.