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Model Performance
Prepayment Analysis
by Dan Szakallas
As expected, prepayments dropped again in October, although the decreases were not as drastic as we anticipated. FNMA 30-year discounts declined by 10% and 6.5% for 4.5’s and 5.0’s, respectively. Cuspy premiums dropped about 5% and deep premiums dropped about 5-6%. GNMA collateral also waned, and for the discounts the decrease was a bit stronger than the FNMA’s; 5.0’s and 5.5’s fell by 11% and 10.5%, respectively. Actual pool CPR speeds of selected coupon buckets, along with corresponding model forecasts are shown 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 |
10.67 |
9.17 |
8.46 |
4.21 |
12.84 |
8.25 |
13.98 |
9.56 |
5.0 |
14.14 |
13.38 |
11.76 |
8.02 |
15.77 |
13.91 |
15.05 |
14.83 |
5.5 |
17.37 |
17.73 |
18.03 |
19.37 |
17.67 |
18.52 |
20.09 |
25.38 |
6.0 |
20.58 |
20.3 |
27.54 |
27.87 |
20.05 |
18.67 |
28.32 |
32.28 |
6.5 |
21.23 |
21.69 |
31.13 |
29.2 |
20.46 |
19.3 |
32.1 |
30.39 |
7.0 |
22.37 |
24.16 |
31.59 |
30.91 |
21.25 |
20.13 |
31.95 |
32.75 |
7.5 |
21.99 |
26.73 |
30.8 |
33.81 |
21.42 |
22.56 |
30.67 |
36.55 |
The results of the Andrew Davidson & Co., Inc. Prepayment Model v4.3.4a for October show that the model anticipated a little steeper of a drop in prepayment speeds seen this month. Across all model types and coupons, the model was slightly slower than the actual prepayment speeds for FNMA 15’s by a balance weighted average of just -0.8 CPR across coupons. For FNMA 30’s, the model was off by a balance-weighted average of -0.9 CPR, due mostly to discounts. The GNMA 30-year model was actually fast with a balance-weighted average error this month of 2.5 CPR and was a bit slow on discounts. Lastly, the GNMA 15-year model performed reasonably well, being slow by a balance weighted average of -1.9 CPR across coupon buckets, again mostly due to discounts.
