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Prepayment Update
Credit Commentary
Valuation Commentary
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Prepayment Update
How Important are Involuntary Prepayments?
By Sanjeeban Chatterjee |
In the past, mortgage prepayment models dealt primarily with total prepayment speeds. This included voluntary prepayments due to refinancing and turnover, and involuntary prepayments due to defaults leading to foreclosures and REO. This was mainly because data separating voluntary and involuntary terminations was not readily available. With the increase in loan origination and securitization in the non-agency mortgage sector, more data became available and investors started paying more attention to such issues. With the “sub-prime” crisis, investors are now more focused on the default side of mortgage terminations, and are doing more loan level analysis than ever before. This is a healthy outcome of all the turmoil that we are seeing in the markets. Link to this article
Credit Commentary
Reinventing Securitization:
If It Ain’t Broke, Don’t Fix It. But What if It is Broken?
By Andrew Davidson |
Securitization has been an important driver of economic growth and efficiency. Securitization has increased the amount of money available for home ownership and has facilitated the growth of a myriad of economic sectors. However, in the past year, securitization itself has been the cause of a major disruption in the global economy.
Securitization is the process by which loan investment is separated from loan origination. Through this separation, securitization provides the economy with certain benefits. One clear benefit of securitization is increasing the availability of capital beyond the capacity of the loan originators. Securitization also offers the benefit of spreading risk and allowing more market participants the ability to impact the pricing of assets. Link to this article
Valuation Commentary
How to Use Credit OAS:
An ABS Valuation Case Study for the Illiquid Market
By Alex Levin |
In a number of Pipeline articles and at AD&Co’s Annual Conference in June 2007, we introduced the concept of Credit OAS as a sound analytical approach to modeling non-agency MBS. The basic idea is similar to the traditional OAS method, but it revolves around coupled simulations of interest rates and home prices. It also requires the use of a model for defaults and losses (e.g., the LoanDynamics™ Model, LDM), which delivers projected vectors of prepayment, default, loss severity and delinquency rates for every market scenario. Link to this article |
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