UCM, Inc.

Denver based UCM, Inc. (formerly United Capital Markets, Inc.) (“UCM”) provides innovative risk management services to institutional clients, primarily hedging investments in mortgage servicing rights (“MSRs”). UCM uses its proprietary computer model HedgeCalc™ to calculate optimized hedges offsetting the risk of changes in MSR value caused by changes in the benchmark treasury rate.

UCM was founded in 1996 by principals with decades of mortgage banking and hedging experience. UCM spent over a year perfecting its HedgeCalc™ program before it could begin providing uniquely effective services to the mortgage industry. UCM now provides risk management services to companies ranging from a few hundred million in notional MSR balances to tens of billions in notional balances. While focused mainly on MSRs, UCM has recently branched out to provide hedges of other risks that correlate to treasury securities.

UCM partners with its clients to help implement “best practices” to maximize the value of mortgage banking operations, from production pricing through MSR recognition, hedging and accounting.

HedgeCalc™ provides real time analysis of risk exposure and solves for the most effective hedge at the highest profit or, in the case of options-only hedges, the lowest cost. UCM’s clients can provide a risk acceptance target and see the hedge solution for that target within seconds. The high speed and accuracy of HedgeCalc™ encourages investigation of multiple solutions and clients are not limited to any predetermined number of alternatives.

UCM’s MSR hedges have qualified for hedge accounting under Financial Accounting Standard No. 133 (as amended) since the inception of that standard, achieving a high R-squared correlation and a slope near one. Many competing hedge programs are not “highly effective” as defined by FAS 133 and do not qualify for hedging accounting, leading to unsatisfactory accounting results.

Beginning in 2006, FAS 156 allowed companies to elect fair value accounting for MSRs. This has greatly simplified hedge accounting such that all of UCM’s clients have elected to account for their MSRs using fair value. However, fair value accounting for MSRs is an option, not a requirement, and UCM can provide highly effective MSR hedges no matter which method of accounting its clients chose.

Also in 2006, UCM had a national accounting firm review its Controls Placed in Operation and report pursuant to AICPA Statement on Auditing Standards (SAS) No. 70. This SAS 70 report supports UMC’s clients’ reliance on HedgeCalc™ and the surrounding controls while providing their auditors with a starting point for understanding the system and its control environment.