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AD&Co. Update - June '06
New
Prepayment Model Version v5.1e
by
Rob Landauer
We are pleased to announce the availability of a new version of the AD&Co. Prepayment Model, v5.1e. This new version was announced at our annual conferences and provides two significant enhancements to the v5.1d model.
First, for the agency Hybrid ARM models, the post initial reset prepayment forecast has now been modeled. Previous versions of the Hybrid ARM model held the post reset prepayment forecast constant except for variability caused by seasonality. Now that we have studied the model's performance on post-reset data, we feel it is no longer necessary to use a constant prepayment vector, and, instead, let the model generate prepayment forecasts as it does during the initial fixed period, with slightly dampened speeds.
Additionally, to provide a better fit between actual and forecasted prepayments, we are recommending the following tuning parameter adjustments be implemented for all the agency FHLMC and FNMA Hybrid loan types (3-1, 5-1, 7-1 and 10-1) in all versions of the MBS Prepayment Model (v5.1e, v4.3.4 and v5.0.2b) effective immediately:
SLIDE: 1.05
REFI: .75
SCALE: 1.10
Please note that the Dynamic Performance Reports now use v5.1e and differentiates between pre and post initial reset performance of the Hybrid ARM models. When you select a Hybrid ARM Performance Report, you will see a new field called Reset Period which allows the user to select "pre," "post" or "all" data for actual versus forecasted prepayments.
Second, in v5.1e, the multipliers for two of the enhanced data items, state of origination (NY, FL, CT etc) and loan purpose (purchase vs, refinance) have been reconfigured to be consistent with and normalized like the other enhanced data items. This means that the refi and turnover tuning adjustments for these data items have been updated. For access to v5.1e, please contact Ilda, Rob or Sekiko.
