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Model Performance
by Dan Szakallas

Prepayments took a nose dive in January, as many factors conspired to cause drops larger than were expected. FNMA 30-year prepayments for 5.5 to 6.5 coupons dropped about 20 % from December. This was definitely more than the normal seasonal decrease. A small increase in mortgage rates seemed to also contribute to these big drops. All collateral types across all coupons showed decreases from the previous month. Below we show Actual pool CPR speeds of selected coupon buckets, along with corresponding model forecasts.

 
FNMA 15
FNMA 30
GNMA 15
GNMA 30
Coupon
Actual
Model
Actual
Model
Actual
Model
Actual
Model
4.5
7.8
8.0
6.3
2.4
9.3
3.9
10.3
2.8
5.0
11.5
15.9
9.6
8.9
11.1
13.4
14.0
8.7
5.5
16.0
19.9
14.9
21.3
18.1
19.7
20.0
20.2
6.0
20.7
19.9
23.9
35.9
18.3
23.2
26.7
35.9
6.5
22.2
20.9
28.8
38.8
19.8
23.6
32.3
38.0
7.0
22.6
24.0
31.1
41.2
22.5
22.8
33.3
38.6
7.5
22.3
26.3
31.2
40.8
20.5
22.9
32.3
36.4

The Andrew Davidson & Co., Inc. Prepayment Model v4.3.3k was faster than actual prepayment speeds for all collateral types listed above, illustrating the fact that these decreases took many by surprise. Across collateral types, the model performed best for FNMA 15-year pools, with a balance-weighted average discrepancy of only 1.2 CPR. The FNMA 30-year model was fast overall by a balance-weighted average of 6.0 CPR across coupons. Looking at the GNMAs, the model was fast for both the 15-year and 30-year pools, coming in at balance-weighted averages of 3.5 CPR and 7.5 CPR, respectively.

As we review the results of the new 5.1b prepayment model, we can see that it is very accurate in forecasting prepayments for the lower coupons for FNMAs, but a bit fast for GNMAs.

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