AD&Co. Update

March 2005
by Rob Landauer

Now Available: New version of MBS Prepay Model: 4.3.4 or 5.0.1a

AD&Co is pleased to announce the availability of a new version of our market standard pool level MBS Prepayment Model. Depending on the version of the vendor system through which you use the model, the new version will be either v4.3.4 or 5.0.1a. Both versions will generate the same prepayment speeds. To obtain a copy of the version you need, please contact Ilda by phone (212-274-9075) or by email.

The new version of the model changes the existing versions (v4.3.3k and v5.0.0cc) as follows:

For 15 and 30 year fixed FNMA, FHLMC and GNMA only: The lag and seasonality coefficients were updated to match the lag effects indicated by the data used in our new Enhanced Pool Level Prepayment Model, v5.1. Lags are now more heavily weighted to the current coupon from one month ago (cc1) and two months ago (cc2) with much less weighting on three months ago (cc3). The mortgage rate forecast for the current month (cc0) represents a weighting of the previous three months to capture the lag effect of changes in interest rates and the impact on prepayment speeds. This change means that during periods of rising rates, prepayment speeds will slow down faster than in the previous version. Conversely, during falling rates, prepay speeds should rise more quickly.

For 15 and 30 Year GNMA only: The refinance curve was moved to the left for discounts and current coupons (4.5%-6.0%) to make these coupons more sensitive to refinancing thereby increasing prepayment speeds. The aging curves for the current and discount sectors were shortened to allow these pools to reach their peak CPRs at an earlier age.  The net result of these changes will be faster projected prepayment speeds for this sector only.

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