The current major financial turmoil can be largely linked to the complexity and lack of clarity in the mortgage securitisation market.
Microgen is currently working with a major North American financial institution to deliver financial transparency across its structured mortgage business. This unique project will provide the financial institution with significant competitive advantage in the current uncertain and volatile mortgage securitisation market.
Microgen has been deploying the Microgen Accounting Hub ("MAH"), which is based on its Business Process Platform (BPP) Microgen Aptitude, within a major North American financial institution in order to provide improved accounting consistency and financial transparency across multiple accounting systems. This deployment provides the ability for the institution to deliver timely financial information across the whole of its structured mortgage business, including liabilities and profit/loss on its products. In addition, MAH will also handle a very broad range of financial instruments including derivatives, mortgages, Mortgage-Backed Securities (MBS) and MBS Repo products.
The complexity of mortgage securitisation is at the heart of the current financial instability. Mortgages today go through many layers of securitisation, involving multiple organisations, financial instruments and legal entities. This has meant that tracking actual profit, loss and liability on mortgage business has been extremely challenging and difficult. It has therefore been almost impossible for many financial institutions to understand their financial position, particularly in the event that another player in the interlinked web of mortgage packaging fails.
"The intricacy and interconnectedness of today's mortgage securitisation market is far too complex for most financial institutions to understand quickly. Until now the primary tool has been the reliance on time-consuming, manual entry spreadsheets, exacerbating the current crisis due to the lack of a clear view of liabilities and counter-parties" said David Sherriff, COO, Microgen. "Our ground breaking implementation provides the clarity, accuracy and consistent accounting information that financial institutions need to navigate themselves out of this current crisis."
Using the Microgen Accounting Hub, Microgen's client is able to reduce the set of flows from the legal entities in the Capital Markets business to standard accounting events derived from the underlying mortgage products. Every flow is separated for each level of securitisation and resale, providing a consistent and accurate view across its mortgage business. This allows the client to understand its current financial position and liabilities, including the ability to rapidly analyse events such as any player in the chain being unable to meet its commitments.
The Microgen Accounting Hub is an established, modular product that delivers the components required for the effective management of a financial institutions finance function. MAH manages the intelligent sourcing and validation of trade and position data from sources such as front office or settlement systems. Processing these trade events against business logic created for virtually all major financial instrument types, MAH provides consistent accounting treatment utilising best practice templates and creating accounting postings. MAH maintains repositories for risk, financial and regulatory reporting, calculates cost of funding and delivers profit and loss and balance sheet substantiation. Through its use of Microgen Aptitude, MAH is architected to manage the high trade volumes and complex processing requirements that are required in today's financial markets.
The Microgen Accounting Hub is the first commercial solution able to provide consistent financial reporting across the mortgage securitisation market.