TRACK BORROWER BEHAVIOR WITH THE 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 new 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 analyzied, 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 as well as the probability and magnitude of loss, given loan characteristics and a user-driven scenario for interest rate and house price indices. This 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 that have sound economic rationale and the greatest impact on 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 it 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.

KEY TRANSITIONS

Prepayment, Delinquency, Default, Cure, Recovery and Liquidation

KEY MODEL DRIVERS

Loan level characteristics (such as LTV, FICO and Original Loan Balance), and 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.

SEE FOR YOURSELF HOW THE MODEL IS PERFORMING

The LoanDynamics™ Model key transitions.

 

 

 

 

 

 

MODEL DELIVERY

We offer the LoanDynamics™ Model as a C+ subroutine, delivered either as a Windows dynamically linked library (DLL), a Unix shared object, or easy-to-use application embedded in Excel or Quantrix. The subroutine is ready for integration into customers' internal systems and is available through the Compass Analytics, FactSet Research, INTEX, Polypaths, QRM, Quantrix, RiskProfiler™, and RiskSpan systems. We also provide technical support for integration of the LoanDynamics™ DLL into any system.

HOME PRICE SIMULATOR

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 OFHEO 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