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Model Performance
Prepayment Analysis
by Dan Szakallas
Prepayments displayed noticeable declines from August to September, which was expected, although drops in the discount sector were a bit sharper than anticipated. As rates rose steadily from the lows at the end of June, prepayments on FNMA 30 4.5’s and 5.0’s declined by 24% and 21%, respectively. Cuspy premiums dropped anywhere between 12-18%, while deep premiums showed their burnout, dropping as well by about 5-10%. This pattern across coupons was also seen in the GNMA collateral, for both 15 and 30-year pools. 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 |
|||||
Coupon |
Actual |
Model |
Actual |
Model |
Actual |
Model |
Actual |
Model |
4.5 |
11.2 |
9.7 |
9.5 |
4.8 |
14.2 |
9.2 |
15.5 |
10.1 |
5.0 |
14.4 |
14.5 |
12.6 |
9.8 |
16.4 |
15.5 |
17.0 |
15.7 |
5.5 |
17.9 |
18.8 |
19.2 |
21.6 |
19.4 |
20.1 |
22.5 |
26.8 |
6.0 |
21.8 |
21.0 |
27.7 |
31.2 |
20.7 |
20.4 |
30.3 |
33.2 |
6.5 |
22.0 |
22.3 |
32.9 |
31.4 |
21.3 |
20.8 |
34.2 |
32.4 |
7.0 |
23.6 |
24.9 |
33.4 |
32.5 |
20.8 |
21.4 |
33.6 |
34.1 |
7.5 |
24.2 |
27.5 |
31.8 |
34.3 |
22.9 |
23.7 |
32.1 |
36.4 |
The results of the Andrew Davidson & Co., Inc. Prepayment Model v4.3.4a for August show that the model was able to capture the overall drop in prepayment speeds seen this month. Across 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 -0.4 CPR. For FNMA 30’s, the model was a little fast by a balance-weighted average of 0.9 CPR, due mostly to cuspy premiums. The GNMA 30-year model had a balance-weighted average error this month of 1.7 CPR and was a bit slow on discounts. Finally, the GNMA 15-year model performed reasonably well, being slow by a balance weighted average of -1.5 CPR across coupon buckets, again, mostly due to discounts.
