Welcome to the Pipeline, Andrew Davidson & Co., Inc.‘s monthly newsletter — a “pipeline” of relevant and useful information, focused on recent trends, changes and advances in the mortgage investor’s market. We value your input and urge you to contact us with questions, comments or article suggestions. Enjoy!
AD&Co News
On with the Show
by Simone Davis
ASF 2012 starts this Sunday, January 22nd and AD&Co kicks off the New Year in full swing. Stop by our booth (#120) and treat yourself to a demo of our new product, CreditProfile™ or talk to our support team about our analytic solutions and models. If you would like to set-up a private meeting, please contact Rob Landauer, rob@ad-co.com.
In addition, there will be two exclusive articles available at our booth during ASF that are not our January issue of the Pipeline. These two credit commentaries address the GSEs guarantee fee increase and seriously delinquent to current loan trends. Be the first to read our analytical insight and pick up a copy in the Aria’s Bristlecone Ballroom exhibition hall.
Andrew Davidson will moderate a general session on the Future of U.S. Mortgage Finance in Pinyon Ballrooms 4 & 5, Monday, January 23rd at 11:45am. For all those looking for insight into what the future may hold in the housing market, this is the event you want to attend.
Eknath Belbase, our senior consultant will be speaking on Sunday at 2:20pm in the Pinyon Ballroom 3 for the Securitization Pricing and Valuation Tools Breakout Session. Stop by and discover the analytical tools available for pricing and valuation.
Update your model license keys!
Your current keys will expire at the end of January and need to be replaced with a new key. We sent email notifications announcing the release of the new license keys which are available for download through the My AD&Co portal on our website. If you did not receive an email from us, please contact Cody, cody@ad-co.com or Rashad, rashad@ad-co.com.
The Cure Transition: Trends for Loans Going from Delinquent (D) to Current (C) Status
by William Searle
This paper is a part of a recent series of studies Andrew Davidson & Co., Inc. (AD&Co) performed on “back-end transitions.” By “back-end” transitions we mean those transitions between delinquency statuses that occur after delinquency occurs. Other transitions studied in the series are delinquent-to-terminated (DT), seriously delinquent-to-current (SC), and seriously delinquent-to-terminated (ST).
DC is the transition from being delinquent to current. Delinquent is defined as 60- to 150-days in arrears, following the mortgage banking association (MBA) definition. Traditionally these “cures” occurred as borrowers temporarily fell behind in their mortgage payments and then caught up. Since the credit crisis began, however, a greater portion of delinquencies have been caused by more permanent conditions, such as job loss and negative home equity. Additionally, modification programs have caused cures that would not otherwise naturally occur. This paper discusses the effect of these and other trends on the overall cure rate.
Mortgage market rates play a crucial role in modeling borrower behavior and economic factors such as home prices. In prepayment and default models, it enters into a borrower’s incentive to obtain a new loan (refinance). In home-price modeling, it enters our perception of a housing price index (HPI) equilibrium change, thus, HPI in the future. The question each MBS modeler has to ask is: “Which rate is the mortgage market rate?”
The choice made by AD&Co many years ago was to use the secondary-market rate, so-called current coupon, and add a typical primary-secondary spread of 50 basis points (bp). Whereas the company’s analysts clearly understood this approach as being an approximation, the current coupon rate’s availability and reliability outweighed other options. Secondary-market rates for most widely traded MBS products are known on a continuous basis, hence, any analytical product built around them can be used by real-time traders.
Andrew Davidson & Co., Inc. (AD&Co) recently responded to a Notice of Proposed Rulemaking (NPR) issued by the Office of the Comptroller of the Currency (OCC) entitled “Alternatives to the Use of External Credit Ratings in the Regulations of the OCC and Guidance on Due Diligence Requirements in Determining Whether Investment Securities Are Eligible for Investment.” Interested readers can read our full response (which is part of the public record) at http://www.ad-co.com/pubs_papers.
On December 29th, 2011, the Federal Housing Finance Agency (FHFA) acting director Edward Demarco released a statement detailing the increase to the guarantee fee charged by Fannie Mae and Freddie Mac, as part of the Temporary Payroll Tax Cut Continuation Act of 2011. The entire statement can be found here. As part of the legislation, FHFA is increasing the guarantee fee by no less than 10 basis points (bp), effective April 1st, 2012. This increase affects all single-family residential mortgages, and the additional 10 bp in fees will be remitted to the U.S. Treasury instead of being retained by the GSEs. Additionally, the minimum initial increase shall be 10 bp, with the plan to have that number rise over a two-year period per a schedule to be determined after FHFA conducts more research on the subject.
Welcome to the Pipeline, Andrew Davidson & Co., Inc.‘s monthly newsletter — a “pipeline” of relevant and useful information, focused on recent trends, changes and advances in the mortgage investor’s market. We value your input and urge you to contact us with questions, comments or article suggestions. Enjoy!
AD&Co News
On with the Show
by Simone Davis
ASF 2012 starts this Sunday, January 22nd and AD&Co kicks off the New Year in full swing. Stop by our booth (#120) and treat yourself to a demo of our new product, CreditProfile™ or talk to our support team about our analytic solutions and models. If you would like to set-up a private meeting, please contact Rob Landauer, rob@ad-co.com.
In addition, there will be two exclusive articles available at our booth during ASF that are not our January issue of the Pipeline. These two credit commentaries address the GSEs guarantee fee increase and seriously delinquent to current loan trends. Be the first to read our analytical insight and pick up a copy in the Aria’s Bristlecone Ballroom exhibition hall.
Andrew Davidson will moderate a general session on the Future of U.S. Mortgage Finance in Pinyon Ballrooms 4 & 5, Monday, January 23rd at 11:45am. For all those looking for insight into what the future may hold in the housing market, this is the event you want to attend.
Eknath Belbase, our senior consultant will be speaking on Sunday at 2:20pm in the Pinyon Ballroom 3 for the Securitization Pricing and Valuation Tools Breakout Session. Stop by and discover the analytical tools available for pricing and valuation.
Update your model license keys!
Your current keys will expire at the end of January and need to be replaced with a new key. We sent email notifications announcing the release of the new license keys which are available for download through the My AD&Co portal on our website. If you did not receive an email from us, please contact Cody, cody@ad-co.com or Rashad, rashad@ad-co.com.
See you in Vegas!
Open this article... Comment on this article...Credit Commentary
The Cure Transition: Trends for Loans Going from Delinquent (D) to Current (C) Status
by William Searle
This paper is a part of a recent series of studies Andrew Davidson & Co., Inc. (AD&Co) performed on “back-end transitions.” By “back-end” transitions we mean those transitions between delinquency statuses that occur after delinquency occurs. Other transitions studied in the series are delinquent-to-terminated (DT), seriously delinquent-to-current (SC), and seriously delinquent-to-terminated (ST).
DC is the transition from being delinquent to current. Delinquent is defined as 60- to 150-days in arrears, following the mortgage banking association (MBA) definition. Traditionally these “cures” occurred as borrowers temporarily fell behind in their mortgage payments and then caught up. Since the credit crisis began, however, a greater portion of delinquencies have been caused by more permanent conditions, such as job loss and negative home equity. Additionally, modification programs have caused cures that would not otherwise naturally occur. This paper discusses the effect of these and other trends on the overall cure rate.
Open this article... Comment on this article...Valuation Commentary
On Primary-Secondary Spread Modeling
by Alex Levin
Mortgage market rates play a crucial role in modeling borrower behavior and economic factors such as home prices. In prepayment and default models, it enters into a borrower’s incentive to obtain a new loan (refinance). In home-price modeling, it enters our perception of a housing price index (HPI) equilibrium change, thus, HPI in the future. The question each MBS modeler has to ask is: “Which rate is the mortgage market rate?”
The choice made by AD&Co many years ago was to use the secondary-market rate, so-called current coupon, and add a typical primary-secondary spread of 50 basis points (bp). Whereas the company’s analysts clearly understood this approach as being an approximation, the current coupon rate’s availability and reliability outweighed other options. Secondary-market rates for most widely traded MBS products are known on a continuous basis, hence, any analytical product built around them can be used by real-time traders.
Open this article... Comment on this article...Strategy Corner: Regulatory Insights
What Does Investment Grade Mean?
by Eknath Belbase
Andrew Davidson & Co., Inc. (AD&Co) recently responded to a Notice of Proposed Rulemaking (NPR) issued by the Office of the Comptroller of the Currency (OCC) entitled “Alternatives to the Use of External Credit Ratings in the Regulations of the OCC and Guidance on Due Diligence Requirements in Determining Whether Investment Securities Are Eligible for Investment.” Interested readers can read our full response (which is part of the public record) at http://www.ad-co.com/pubs_papers.
Open this article... Comment on this article...Special Bulletin
A Prepayment Update: GSEs Guarantee Fee Increase
by Dan Szakallas
On December 29th, 2011, the Federal Housing Finance Agency (FHFA) acting director Edward Demarco released a statement detailing the increase to the guarantee fee charged by Fannie Mae and Freddie Mac, as part of the Temporary Payroll Tax Cut Continuation Act of 2011. The entire statement can be found here. As part of the legislation, FHFA is increasing the guarantee fee by no less than 10 basis points (bp), effective April 1st, 2012. This increase affects all single-family residential mortgages, and the additional 10 bp in fees will be remitted to the U.S. Treasury instead of being retained by the GSEs. Additionally, the minimum initial increase shall be 10 bp, with the plan to have that number rise over a two-year period per a schedule to be determined after FHFA conducts more research on the subject.
Open this article... Comment on this article...