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Non-agency loan level models have taken on additional importance as the non-agency market has grown tremendously in the last few years. For example, according to Inside MBS & ABS (Sept. 16, 2005), over $1 trillion in agency MBS were issued by Fannie, Freddie, and Ginnie in 2004, while the non-agency market produced $864 billion.4 However, as of the end of August 2005, the $598 billion in agency MBS produced year-to-date is far exceeded by the $739 billion in non-agency securitizations.
5. Enhanced Pool Level Models: 2003 and Beyond
As investors became familiar with the investment characteristics of both agency and non-agency markets, they began to pressure the agencies to provide levels of data disclosure similar to the data availability in the non-agency market. Consequently, important changes in agency data availability have occurred or are in the offing.
First, in June 2003, Fannie Mae and Freddie Mac both began making available additional pool level characteristics for new issues. This data includes weighted averages of important variables such as loan size, LTV, and credit score. Though this change was fairly recent, mortgage models have changed to take advantage of this “enhanced” pool level data from the past several years.
For example, the AD&Co Enhanced Prepayment Model augments the AD&Co pool level models by considering additional pool level characteristics that help to fine-tune forecasts. By incorporating weighted averages for loan size, LTV, FICO score, states of origination, pool percentage of multi-family vs. single family, and refi vs. purchase, this enhanced model captures prepayment differentials across individual pools.
4 Interestingly, Fannie and Freddie purchased almost $212 billion of that non-agency production.
