Since the middle of August, the long end of the yield curve has risen by 17 bps, slightly steepening the curve. With a rate hike at the September Fed meeting priced in by the futures market, the spread between 2- and 10-year Treasuries is now 24 bps. It remains to be seen whether future hikes will result in a completely flat or slightly inverted curve, or whether inflationary pressures from wages and tariffs amidst a continuing recovery in the labor market will first lift the 10-year (currently 3.02%) further prior to additional Fed tightening.

Last week, hurricane Florence hit the Carolinas; while its remnants are now over Pennsylvania and New England, the impact of extreme flooding, particularly in North Carolina, is being discussed in terms of potential impact on the mortgage market. Given that almost a year has elapsed since last year’s hurricanes, it is timely to take a look at what the impact of those hurricanes was on mortgage delinquencies. Our first article, by Daniel Swanson, uses performance data through June to compare our initial thoughts on what might happen to what has actually happened; his findings are both interesting and somewhat surprising.

Daniel focuses on loans from flood-affected counties in Texas, Florida, and Puerto Rico/US Virgin Islands. He finds that while the peak Current to Delinquent transition rate (measured relative to what it would have been without the hurricane based on our model projections) ranged from 13x to 66x, overall prepayments and cures have also been better than one might have expected. In fact, if we focus on what has happened to all loans that were 60+ days delinquent to begin with (including those not affected by hurricanes), Daniel finds that loans in the affected areas actually have higher cure rates.

Our second article, by Alex Levin, presents a product preview of LoanKinetics version 1.10. Two new applications are discussed in his article: a three-scenario Current Expected Credit Loss (CECL) reporting module, stratified by original Loan Performance Ranking (LPR) and a module that computes Net Loss and LAE Reserves Risk, an input into the AM Best Capital Adequacy Ratio in the rating of MI firms. Alex also discusses new features that will be available to LK users due to the integration of a newer version of LoanDynamics (LDM 2.2).

We look forward to your comments and questions and look forward to seeing some of you at ABS East.

Last September, we published a series of articles focusing on what might happen to mortgage loans in the aftermath of Harvey. We looked at borrower behavior after Katrina to help gauge what might happen after Harvey and created a set of scenarios to drive the potential outcomes. Now one year later, we can revisit the impact the hurricanes had on the mortgage universe and how it compared to our initial expectations.

Andrew Davidson & Co., Inc. will soon officially release version 1.10 of LoanKinetics (LK), its flagship product for credit analysis and valuation of whole loans and mortgage insurance (MI). It comes with two new, internally automated, business applications:

• A three-scenario Current Expected Credit Losses (CECL) reporting, stratified by original Loan Performance Ranking (LPR) and
• Computing “B5” term (“Net Loss and LAE Reserves Risk”) that enters the AM Best’s Capital Adequacy Ratio methodology for credit rating of MI firms.

Along with the ability to distinguish loans with different delinquencies more granularly, Agency LoanDynamics Model+ 2.2 (included with LK installer) features updated delinquency transition models and a brand new multifamily model that allows users to project prepayments and defaults for multifamily collateral.