Custom Prepayment Model
Model Type: Custom Loan Level or Pool Level Prepayment Models
Model Overview: The risk management, hedging and valuation
of mortgage loans are most effective when using a prepayment model
that is predicated on the specific characteristics of the loans
being measured. The development of a prepayment model that is based
on the characteristics and previous prepayment experience of the
loan types and programs to be evaluated can provide more targeted
and precise prepayment forecasts. The more accurate the prepayment
forecasts, the more effective the management of the collateral.
Clients interested in the development of a custom prepayment model
will provide AD&Co. with the required data needed to analyze
the loan types selected. The specific data fields required, the
number of years and the loans needed to build an accurate model
will be determined after an evaluation of the loan types to be considered.
This data will then be subjected to the same rigorous methodology
used to develop AD&Co.'s market standard pool level and loan
level prepayment models.
Once the model is created, AD&Co. will develop software and
subroutines that can easily be integrated into the client's system
of choice-either a proprietary system or an existing vendor package.
Model Inputs: Depend upon the collateral to be evaluated
but can include: Coupon, age, original and current loan-to-value,
loan size, state of origination, burnout factor and mortgage current
coupon forecast.
Model Outputs: Monthly SMM and CPR forecast, WAL equivalent
PSA and CPR, first and second year CPR.
Model Documentation:
Custom Prepayment
Model
Platforms Supported:
The software can be ported to any platform specified by the client.
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