TRACK BORROWER BEHAVIOR WITH THE LOANDYNAMICS™ MODEL

NON-AGENCY LOANDYNAMICS™ MODEL

The LoanDynamics™ Model gives you useful information about how loans will perform by tracking borrower behavior over the lifetime of a loan. Using historical data and studies of how people actually make their monthly payments, we accurately forecast how borrowers are likely to behave based on strong economic rationale.

The LoanDynamics™ Model can utilize loan or pool level data. When loan level data is used, every single loan that backs the security is analyzed, resulting in more accurate forecasts.

For issuers and investors, our model forecasts key investor performance metrics such as CPR (prepayment), CDR (default), 60+ delinquency and loss severity, given loan characteristics and a user driven scenario for interest rate and house price indices. Our open architecture gives you the flexibility to tune the model according to parameters you set.

The LoanDynamics™ Model goes beyond the traditional “two-state” competing risks model that forecasts only prepayments and defaults, to include forecasts for a number of loan transitions, including 60+ delinquencies to account for the impact on bond triggers. We have condensed the number of transitions to those which have sound economic rationale and the greatest impact of investment performance.

The model is unified across credit sector (jumbo prime, subprime, Alt-A/B, High LTV) and product type (fixed, adjustable, hybrid, IOs, first and second lien) and relies on observed loan characteristics (i.e. data available in the typical servicing system file) to make its projections. As a result, users are not required to make potentially arbitrary judgments about credit sector or product type and users can apply the model to pools of loans containing a wide mix of underlying collateral.

This model is also capable of handling recent legislative/social events such as loan modifications.             

Key Transitions

Prepayment, Delinquency, Default, Cure, Recovery and Liquidation
The Non-Agency LoanDynamics™ Model Key Transitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Model Drivers

Loan level characteristics (such as LTV, FICO and Original Loan Balance), paths of future interest rates and HPI.

Key Model Outputs

Monthly forecasts for the remaining life of the loan of Prepayments (CPR), Defaults (CDR), 60+ & 180+ Delinquencies, Loss Severity and Cumulative Loss.

AGENCY LOANDYNAMICS™ MODEL (BETA)

The Agency LoanDynamics™ Model gives you information about how loans will perform by tracking borrower behavior till loans get repurchased. Using historical data and studies of how people actually make their monthly payments, we accurately forecast how borrowers are likely to behave based on strong economic rationale.

The Agency LoanDynamics™ Model was developed using pool level data.

Models are available for Freddie, Fannie and Ginnie fixed and ARM loans. If delinquency status is not available, then the model generated delinquency status is used.

Key Transitions

Prepayment, Delinquency, Cure
The Agency LoanDynamics™ Model Key Transitions

 

 

 

 

 

Key Model Drivers

Pool characteristics (such as credit score, weighted-average original loan size, original LTV, current LTV), paths of future interest rates and HPI

Key Model Outputs

The model forecasts performance metrics such as CPR (total prepayment), CDR (default), and CRR (voluntary prepayment).

SEE FOR YOURSELF HOW THE MODEL IS PERFORMING

Model Performance

 

 

 

 

 

MODEL DELIVERY

We offer the LoanDynamics™ Model as a C+ subroutine, delivered either as a Windows dynamically linked library (DLL) or a Unix shared object.

The Non-Agency LoanDynamics™ Model is ready for integration into customers' internal systems and is available through the Compass Analytics, FactSet Research, INTEX, Polypaths, QRM, RiskProfiler™, and RiskSpan systems. It is also available for use through Excel.

The Agency LoanDynamics™ Model subroutine is available for use with AD&Co’s RiskProfiler™ system and will be available for use on your system once the necessary integration work has been completed by our vendor partners.

We provide technical support for integration of the LoanDynamics™ DLL into any proprietary system.

HOME PRICE INDEX GENERATOR

The home price index generator (HPI generator) produces a Monte Carlo path of projected HPI at the national level. The model simulates home prices consistently with FHFA historical data and includes an interest rate term pointing to mortgage affordability, a general "diffusion" reflecting other inertial economic factors, and "jumps" responsible for random return on real estate. These factors, separated historically by the Kalman filtering, reflect realistic volatility and the correlation structure for the US and geographical HPI indices and help value the borrower default option.

IMPLIED DEFAULT MODEL

The implied default model draws on AD&Co's advanced OAS technology to compute the value of ABS tranches under a range of prepayment and default scenarios, relating market-observed bond prices to a distribution of defaults and losses.

CREDIT OAS

Credit OAS is AD&Co's complete valuation solution for credit-impaired instruments. Click here for more details.

RELATED RESEARCH

Current-to-Termination Model for LoanDynamics™ Model - The Pipeline, July 2010
Enhancements to the LoanDynamics™ Model - The Pipeline, April 2010
Current-To-Delinquent Model for LoanDynamics™ v1.8 Quantitiative Perspectives, December 2009
New Severity Projections in LDM v172 - The Pipeline, July 2009
LoanDynamics™: AD&Co’s Approach to Modeling Credit Risk Quantitiative Perspectives, October 2008
Improving the Investors' Perspective on Credit Risk - The Pipeline, October 2006.

AD&Co Models Credit Risk as Non-Agency Mortgage Share Rises. Asset Securitization Report pp. 16-17, Vol. 6/Number 23, June 12, 2006

Credit Risk Becoming Increasingly More Relevant to Mortgage Investors, Secondary Marketing Executive, August 2005