The 2007 version of our annual client conference, “Managing Prepayment & Credit Risk in Volatile Times” rapidly approaches. The event will be held on June 7th in New York City at the national landmark and opulent Capitale and on June 15th at the prestigious St. Regis Hotel in San Francisco. Registration is free for our clients and friends and is currently available at our website here, http://www.ad-co.com/2007Conference/2007RegForm.htm. Links to the conference agenda, venue directions and hotel recommendations can also be found on this registration page.

The past six months have been challenging but interesting for our industry and it is our hope the conference will provide some insight that will help you manage the risks and exploit the opportunities at hand. Click here to read the full article.

With the LoanDynamics™ Model (LDM) out the door (http://www.ad-co.com/credit_product_line/loan_dynamics_model.htm), AD&Co is at full steam working on its most needed application – incorporating LDM into our valuation/OAS system. “Credit OAS” is a natural jargon, perhaps very inaccurate, but serving its point: everyone understands what it means. We talk about an OAS model with a full generation of random loan losses and deals’ credit triggers. Capable of generating prepayments and defaults concurrently, coupled with our term structure models and home price index (HPI) model, the Credit OAS system should assess value and risk of sub-prime loans and structured deals in a fundamentally sound way. Our development ideas and first results are discussed in this article; read more on this topic in next month’s commentary. Click here to read the full article.

Prepayments came out of the winter doldrums in March, posting overall increases for the first time since November to December. We observed a balance-weighted average increase of 15-17% for FNMA 30-yr 6.0’s to 7.0’s, and an 11-14% increase for the same coupons in FHLMC 30-yrs. Interestingly, there was a small 1% drop in the FNMA 7.5’s and 8.0’s, which shows just how burnt out those pools are. Overall, the balance-weighted average increase for all FNMA 30-yr coupons was 16%, which is almost right on point with the 15% we predicted last month. The GNMA’s behaved a bit differently, as there was only a single-digit percentage increase across all 30-yr coupons in the 5.5-8.0 range. Looking at the FHLMC hybrid ARM data, we observed balance-weighted average increases between 12-20% in Libor and Treasury indexed 5/1’s, 7/1’s, and 10/1’s (all during their initial reset period), while 3/1’s posted a very large increase of almost 40%, most likely due to reset behavior. Click here to read the full article.