Enhanced Prepayment Model

Model Overview: The MBS Enhanced Prepayment Model uses data through June of 2005 and adds two new factors, vintage-based loan size effect and Yield Curve spread, to our classic Model to improve the fit between actual and forecasted prepayments. The enhanced model adjusts the refi and turnover tuning parameters into unique risk multipliers that capture the impact the extended disclosure data have on prepayments. In addition, the enhanced version includes a true loan level model for 30yr and 15yr Jumbo Prime loans utilizing such specific loan level characteristics as loan size, state of origination and original and current LTV to more accurately forecast each loan's propensity to prepay.

Model Inputs: Loan Type, Gross WAC, Original WAM, Loan Age

Enhanced Pool Characteristics: WA Original Loan Size, WA Original Credit Score, WA Original LTV, States of Origination, Loan Purpose, Occupancy, Property Type

Factors Considered: Turnover (tuned by enhanced data), Refi (tuned by enhanced data), Burnout, Seasoning, Seasonality, SATO, Home Price Appreciation (state level), Vintage-based Loan Size Effect and Yield Curve Effect.

Functional Form: Active-Passive Decomposition with naturally occurring Burnout

Loan Types Covered:

Delivery: Subroutine and Online Demo

Performance Reports: Available for Agency Fixed and Agency Hybrids

Fixed Rate Tuning Parameters: Scaling, Turnover, Refi, Slide, Burnout, Age, Lag, Credit Cure, SATO, Cashout, Curve at Origination (CATO)

ARM and Hybrid Tuning Parameters: Scaling, Turnover, Refi, Slide, Burnout, Age, Lag, Credit Cure, SATO, Cashout, CATO

Risk Multipliers: The MBS Enhanced Prepayment model with risk multipliers uses adjustments to the Refi and Turnover tuning parameters to account for the impact of extended data items.

Model Documentation:
Fixed-Rate Agency MBS Prepayments & Model Enhancements
Divide & Conquer: Exploring New OAS Horizons, Part I Active-Passive Decomposition