MDX.GN FAQ

Index

    • MDX indices (called Series) are designed to measure mortgage borrower credit stress.

    • MDX indices track credit events to facilitate timely calculations.

    • MDX indices do not follow loans to their final disposition because reliable data allows for defined calculation of credit events - again, credit stress, not liquidation - earlier in the borrower performance reporting cycle.

    • MDX.GN indices contain loans selected from Ginnie Mae II MBS pools.

    • Approximately 85% of loans from these pools fit the eligibility criteria for inclusion in an MDX.GN Index (note: modified and reperforming loans are excluded).

    • Each MDX Series covers a 6-month pooling window, and each reference loan is seasoned for a minimum of 4 months before being included.

  • A typical series has between 450,000 (2023) and 1,150,000 (2022) individual loans.

  • A typical series has between 450,000 (2023) and 1,150,000 (2022) individual loans.

  • A new MDX Series is constructed and published every six months (March and September).

  • Borrower credit metrics vary based on prevailing FHA and VA origination trends. Median values for Ginnie Mae borrowers recently are 690 FICO, 98% LTV, 45% DTI, and 74% first-time homebuyers.

    • Vista creates the index selection criteria and calculation process.

    • ICE Mortgage Data and Analytics is the official computation agent for MDX, populating the loans that fit index construction criteria and reporting their performance monthly.

    • MDX calculates the number of cumulative credit events relative to the total number of reference loans in a Series.

    • The index starts at 100 and goes up as credit events accumulate

    • MDX is updated each month.

    • A credit event is evidence of borrower credit stress as reported by Ginnie Mae loan level data.

    • A reference loan experiences a credit event when it becomes 120-days delinquent or receives a modification.

  • Nothing. Once a loan experiences a credit event, there’s no curing.

  • Prepaid loans remain in the Series reference pool but can never experience a credit event for calculating the value of the index.

    • The index is equal weighted based on loan counts.

    • A fixed severity for each loan is required to determine the impact of borrower credit events on the index calculation.

    • 100% severity is the most efficient for index and trading purposes.

Swaps

  • Counterparties exchange fixed payments (protection buyer to seller) and floating payments (protection seller to buyer). Floating payments are based on changes to the value of an index. This mechanism allows the buyer and seller of protection to hedge and source credit risk based on the value of the reference index value.

  • Due to the frequency and regularity of credit events on mortgage loans, MDX index values are expected to change monthly.  This is different from corporate credit default swaps, where credit events (and floating payments) occur episodically.

    • The protection buyer pays a fixed rate monthly to the protection seller based on a 2.00% annual coupon.

    • The protection seller pays a floating rate monthly to the protection buyer based on changes to the MDX factor.

    • Payments are netted between the buyer and seller.

  • The MDX factor is the inverse of the MDX index.  Example: If the MDX index is 102%, then the MDX factor is 0.98.

  • The notional value of the swap is reduced each month by the change in the MDX factor.  Example: If the original notional amount of the swap is $10,000,000, and the MDX factor is 0.98, then the current notional amount is $9,800,000.

  • The original notional amount is the nominal size of the exposure agreed to in the swap trade.  The current notional amount is the original notional amount multiplied by the effective MDX Factor on a given date.

    • The monthly fixed leg payment is the fixed coupon rate (2.00%) multiplied by the current notional value of the swap multiplied by the day count fraction (actual # of days/360).

    • The payment is expected to decrease each month as the current notional value of the swap declines.

  • The monthly floating leg payment is the change in the current notional amount month over month. This can also be calculated by multiplying the change in MDX factor from the prior month by the original notional value of the swap.

  • The firm responsible for calculating payments is specified in the trade confirmation.  Vista offers reference calculations on its website.

  • The initial term is 63 months at the start of each new trading series.

  • If a counterparty holds an MDX Swap for the six months it is on-the-run, the average duration will be exactly five years.

    • The Index Fixing Date is the 8th business day of each month.  This is the date that the new MDX Factor is published to the market.

    • The Index Effective Date is the 9th business day of each month.  This is the date that the new MDX factor is used for calculating the monthly floating payment and begins the interest accrual periods for the fixed payment. 

Data

    • Vista and ICE provide all MDX index data including MDX factors and reference loan constituent identifiers.

    • This data is free of charge and is expected to be available through other market data distributors.

    • Loan level performance data on Ginnie Mae reference loans matching the index results is available from ICE Mortgage Data and Analytics for a subscription fee and is updated each month.

  • Swap reference data is free of charge and available directly from Vista and ICE, as well as through other market data distributors.

Analytics

    • ICE and INTEX have created MDX models. Bloomberg also expects to release an MDX Swap model.

    • The ICE model will be released on their website and within their FI Select trading platform shortly.

    • The INTEX model is available in the US RMBS library under the ticker MDXGN1.

Trading Conventions

    • MDX will trade on clean dollar price.

    • ICE is providing a free MDX model on their website and within their FI Select trading platform that can convert price to spread.

    • No rate curve is needed for settlement purposes since trades are executed on dollar price.

    • Market participants can use the curve provided by ICE within the MDX converter or input their own for analytical purposes. 

    • MDX Swaps can be traded by voice or electronically through the ICE FI Select platform.  MDX Swaps must be traded through a Vista-licensed dealer using ISDA standard documentation.

    • In both cases, completed trades will flow to ICE Link for affirmation and allocation, to TradeServ for legal confirmation, and to DTCC for recording and reporting. 

    • Initially, MDX Swaps will trade as bilateral, over-the-counter derivatives.  ICE anticipates that MDX could become clearing eligible based on market adoption and FCM support. 

    • The use of ICE FI Select and ICE Link for trading and processing will facilitate a smooth transition from bilateral to cleared trading. 

  • All MDX Swap trades will be reported to DTCC GTR and be visible on FI Select and other market data vendors.

  • Yes.   ICE Derivatives will produce a continuous MDX Composite Price throughout the trading day, which will be available real-time on FI Select.  The composite prices will be computed from indicated prices and completed trade reporting.  The final reported composite price will serve as the EOD price.

Documentation

  • MDX Swap trading will be covered by existing ISDA Master Agreement documentation.  An ISDA MDX Standard Terms Supplement and Confirmation will be used for executing MDX Swap trades.

  • To trade on FI Select, a firm needs to review and accept ICE’s rule book and complete a participation agreement.  If a firm is not already trading counterparty at ICE, it needs to go through an onboarding process including standard KYC protocols and AML documentation. 

Margin

  • Early indications suggest a base margin requirement of 4%-5%.  Each dealer will decide margin amounts on a client-specific basis.

  • Dealers and clients expect to post the same collateral as is used under existing ISDA collateral agreements.

Capital

  • Indications are between 200% and 300%.

  • MDX positions are unlikely to provide any initial direct regulatory capital offsets against existing mortgage credit positions. 

Historical Performance

  • Vista has MDX index results going back to 2014, the year that Ginnie Mae began publishing monthly loan level performance data.

  • 5-year Credit event rates have ranged from 6% to 12%.

  • Over a period from 2019 through 2024, dealers estimated that daily on-the-run MDX Swap dollar prices ranged from over par to the mid/high 80s.