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The Loan Dynamics Model™ goes beyond a traditional “2-state” competing risk model (which includes just prepayments and defaults), and can be used to model the effects of 60+ delinquency on bond triggers. Our model also builds upon traditional transition models with 7 or 8 payment status categories by focusing only on those that have the greatest impact on investment performance. This simplification allows for greater emphasis on the dynamic aspects of the loan transitions.
The model is unified across credit sector and product type, and it relies on observed loan characteristics (i.e., data available in the typical servicing system file) to make its projections. As a result, users are not required to make potentially arbitrary judgments about whether a loan falls into jumbo, Alt-A, High LTV, or Subprime credit sectors, and users can apply the model to pools of loans containing a wide mix of underlying collateral.
