AD&Co. Update

A New & Improved HEL Model
by Sanjeeban Chatterjee

AD&Co. is developing a new model for sub-prime loans to replace the existing model. In this month's article, we describe the data we are using to develop the model, as well as some of the descriptive statistics obtained from the data. The model factors and the actual model results will be published in a subsequent paper.

The data we are using to develop the model has been obtained from the Intex database for Home Equity Loans (HEL) and Asset-Backed Securities (ABS). These loans represent first lien fixed and adjustable-rate mortgages.

We plan to develop prepayment models that reflect the performance for the top 10 HEL issuers. While the general features of the model will be the same, there may be some differences by issuer.

AD&Co's existing prepayment model for HELs was developed with data available up until the end of 2000. However, the structure of the HEL market has changed substantially since then, and the profile of borrowers who take these loans has also been evolving. Hence, we decided to develop a new model for HELs that would incorporate the new trends we have observed in the data.

A benefit of using data from Intex is that the model can be easily integrated through systems that use Intex to obtain the cash flows. To avoid compatibility issues, the model will use fields that are available through Intex.

Description of Data
We obtained data from the Intex database for Home Equity Loans (HEL) and Asset-Backed Securities (ABS). In particular, we used all loans that met the following criteria:

AssetBack_Type = 0 (Normal Whole Loans)
AssetBack_Type = 3 (Home Equity Loans)

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