QUANTIFY PREPAYMENT AND CREDIT RISK TO BETTER UNDERSTAND AND VALUE YOUR PORTFOLIO
LoanDynamics (LDM) is AD&Co’s flagship prepayment and credit model that helps you manage interest rate and credit risks in mortgage loans by forecasting prepayment, delinquency, default and loss probabilities. Used across the financial industry, LoanDynamics provides an ability to measure risk and forecast portfolio values, based on a variety of changing economic and market conditions such as home prices, interest rates and unemployment.
LoanDynamics is flexible to use, allowing for cash flow projections, bond pricing/valuations, asset/liability management and hedging strategies. The model can be tuned to user-specific portfolios. Users are also given access to full documentation on how LoanDynamics is modeled, affording even greater understanding and total transparency into our approach. From the model’s construction to the outputs it generates, LoanDynamics can also effectively challenge a user’s own internal analytics.
LoanDynamics is available through a variety of third-party vendors. Product users are provided with user guides and a variety of publications that report on model updates, technology developments and related market issues.
LoanDynamics (LDM) is available in various versions to satisfy client needs.
The LoanDynamics Model family includes
For Agency pools
D120; vectors of prepayments, termination through repurchase at 120 days, and a combination of the two
Best for Agency Pools, CMOs, and TBAs
For Agency whole loans
D180 or life of loan vectors of voluntary and involuntary terminations and loss given default
Best for Credit Risk Transfer deals with actual or formulaic severity and agency-quality loan portfolios
Non-Agency loans and RMBS (jumbo prime, Alt-A, subprime); legacy and post-crisis
Life of loan vectors of voluntary and involuntary terminations and loss given default
Best for non-agency securities and non-agency whole loans
Agency multifamily loans and securities
Life of loan monthly vectors of voluntary and involuntary prepayments
Best for Ginnie Mae, Fannie Mae, and Freddie Mac deals
Auto Loans (loan level)
Projects life of loan delinquency migration until payoff, prepayment, or default. Projects severity for defaulted loans.
Best for auto loan portfolios or securities
Features and Capabilities
Key Features and Capabilities
Voluntary and involuntary prepayments are forecasted within a single framework
Single family LDM options include transition-based frameworks for handling loans or pools in any delinquency status
Single family LDM options include a dynamic primary-secondary spread rate model
Auto LDM includes a two-stage severity model: 1) model probability of repossession; 2) separately model severity for repossessions and non-repossessions
Users can "tune" the model to address portfolio nuances
Widespread adoption and internal monitoring provide constant feedback ensuring that LDM maintains its relevance
Serves as an effective challenge to internal models
Comprehensive documentation provides total transparency into the model's approach
User guides and publications discuss timely updates, technology developments and related market issues
Superior client service is available to support product use and functionality
LoanDynamics can be delivered in multiple ways. LDM is embedded in our LoanKinetics and RiskProfiler applications and is available for direct licensing for integration into user platforms. It is also available through third-party providers. Delivery options include:
For questions on optimal system usage and integrations, please contact us.
The LoanDynamics Excel Spreadsheet is a simple, Excel-based interface and is a useful tool for ad hoc analysis, sensitivity and scenario analyses, validation testing and validation of model results coming from a third-party system.
To address regulatory and industry requirements related to model validation and risk management, we have adopted a formal approach based on the inter-agency guidance of banking regulators. This includes assessing the conceptual soundness of all of our models, validating model results by back-testing, and monitoring the models on an ongoing basis, as new data becomes available and as new model versions are released.
The CRT Monitor is a monthly report analyzing traded tranches of Agency Credit Risk Transfer deals. We derive a credit risk rating, our CreditProfile Category (CPC), the underlying credit metrics, and Option-Adjusted Spreads (OAS) given market levels at the close of a month. The underlying analysis is performed using RiskProfiler, our end-user valuation solution, and LoanDynamics credit model.
HPI Outlook is a quarterly report that explains our forecasts on the 25-MSA Composite Index and five geographical indices: US National Index, Los Angeles, Miami, New York and Phoenix Metropolitan Statistical Areas. These forecasts are generated by our HomePriceDynamics model.