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Model Performance
Prepayment Analysis
by Dan Szakallas
Prepayments decreased from October to November as we expected, but the drop was a bit greater than we forecast. FNMA 30-year discounts fell about 12-18%; more than the 10% drop we anticipated. The largest drop was seen in the 6.0’s, which declined 20% from the previous month. GNMA collateral also showed an overall decrease, although the 30-year 4.5’s actually showed a 1.4% gain from October. GNMA 15-year discounts fell about 6-10%. We show actual pool CPR speeds of selected coupon buckets and corresponding model forecasts in the table below.
FNMA 15 |
FNMA 30 |
GNMA 15 |
GNMA 30 |
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Coupon |
Actual |
Model |
Actual |
Model |
Actual |
Model |
Actual |
Model |
4.5 |
9.5 |
8.0 |
7.4 |
3.4 |
12.1 |
6.7 |
14.2 |
7.5 |
5.0 |
12.2 |
11.6 |
9.7 |
5.0 |
14.3 |
10.9 |
12.9 |
12.6 |
5.5 |
15.2 |
15.4 |
15.0 |
14.8 |
16.3 |
15.8 |
17.7 |
20.8 |
6.0 |
19.6 |
18.6 |
22.0 |
22.4 |
20.5 |
15.5 |
25.7 |
28.7 |
6.5 |
20.6 |
20.3 |
28.4 |
24.8 |
20.9 |
16.7 |
30.7 |
25.5 |
7.0 |
22.1 |
22.5 |
29.4 |
27.5 |
21.7 |
17.9 |
30.9 |
28.7 |
7.5 |
21.5 |
25.1 |
29.6 |
31.9 |
22.4 |
20.4 |
30.7 |
35.2 |
The Andrew Davidson & Co., Inc. Prepayment Model v4.3.4a demonstrated a slightly larger drop in prepayment speeds for November. Across model types and coupons, the model was slightly slower than the actual prepayment speeds for FNMA 30’s by a balance weighted average of -1.9 CPR across coupons. For FNMA 15’s, the model was off by a balance-weighted average of -0.8 CPR, though it was a bit fast on high premiums. The GNMA 30-year model was just slightly faster than actuals this month due to premium speeds; and the overall balance-weighted average error this month was 0.9 CPR. Finally, the GNMA 15-year model performed reasonably well, lagging slightly by a balance weighted average of -3.6 CPR across coupon buckets, again mostly due to deeper discounts.
