OFR_2016_Financial-Stability-Report

The group will also consider how the existing data might be improved (see
FSOC, 2016a).
Computing leverage for hedge funds is a long-running challenge.
Comparing gross assets to net assets is the standard way to estimate on-balance-sheet
financial leverage. But this ratio provides limited insight on the
leverage hedge funds can achieve off-balance-sheet, particularly through
derivatives. Gross notional exposure (GNE) is often used to measure total
leverage. GNE is calculated as the summed absolute values of long and short
notional positions, including both securities and derivatives. GNE has the
benefit of incorporating both financial and synthetic leverage. However, it
has notable shortcomings. First, simply summing long and short positions
ignores offsetting positions, which hedge funds often take for hedging purposes.
Second, notional values reflect different types of risk for different
types of derivatives. Calculating more effective metrics to evaluate synthetic
leverage may require identifying other data sources to supplement what is
currently available on Form PF.
Mortgages
Regulators now collect origination data and loan performance data about
much of the home mortgage market. However, they do not collect data
about ownership of a mortgage between origination and final funding.
Information on this short phase in the life of a loan is needed for a full
picture of risks.
A mortgage loan may change hands several times or be used to raise
money for more lending before it arrives at its long-term servicer and
investor. Regulators do not collect data to monitor these activities. The
Mortgage Call Report, started by state bank regulators in 2012, is the first
data collection with high-level information on originators’ lines of credit.
But the report does not include the credit line terms or haircuts applied to
the collateral. These data are needed to assess how credit would contract if
the market faltered.
Regulators have data about mortgage originations and about the investors
that eventually hold mortgages. Establishing a chain of ownership
between those points still requires navigating a patchwork of local records
and legally ambiguous central systems such as the Mortgage Electronic
Registration Systems. More data about the chain of ownership could shed
light on financing vulnerabilities and interconnections among financial
institutions.
The data on commercial real estate loans have not improved as much as
the data on home loans since the financial crisis. In some ways, commercial
loans are more complex than residential mortgages. The mortgages within a
single security or on a single balance sheet can vary in size by several orders
86 2016 | OFR Financial Stability Report