Welcome to The S-Curve
Now you will be able to receive the latest announcements, product updates, and our insights on the mortgage market in real time.
The name of the blog, the S-Curve, is a reflection of our logo and the central feature of our prepayment model. S-curves are seen in nature in many phenomenon, from population growth to prepayment and default models. Our first S-curve, in the early 1990s, used the arctangent function, then piece-wise linear functions, and evolved over time to be more complex and vary by FICO, loan size and LTV. This evolution encapsulates both the timeless nature of fundamental relationships and constant innovation to describe them better over time.
We hope you find the information useful and we look forward to your feedback.
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Overcoming a Legacy of Bias in the Housing Industry: The Discussion ContinuesThoughtsIn our January 19th blog entitled, A More Equitable Lending System Will Not Be Created by Accident, we described the efforts it will take to overcome not just bias in lending today, but the systemic factors that have limited access to credit in the past and have created an unjust system.
We have received much positive feedback on this blog and our earlier blog: In the Mortgage Industry, Who Qualifies as a ‘Good’ Homeowner? However, just as a more equitable lending system will not be created by accident, or even using seemly neutral analytical techniques, a more equitable lending system will not be created by a single individual or organization. Therefore, we believe it is important to highlight recently released research and analysis that can help advance a more equitable lending system.
First, Bankrate published a piece describing some of the sources of the racial wealth gap and several ways that people of color are Combating The Racial Wealth Gap: 9 Money Moves For Individuals of Color”. While many of the recommendations are applicable to anyone looking to engage with the financial system, they are especially important in communities that have not had full access to the financial system.
Second, the politics and sports analytics website, FiveThirtyEight, published a detailed study of the extensive residual impact of redlining, more than 50 years after the practice was banned, The Lasting Impact of Redlining. The study presents a disturbing portrait of how the legacy of redlining has remained imbedded in the structure of homeownership in America.
Finally, bringing many of these threads together, the National Fair Housing Alliance has released a framework for developing and accessing analytical systems used for making credit determinations. Their framework is consistent with the model development and risk management guidelines of the banking regulators and focuses on what steps are necessary during the Purpose, Process and Monitoring phases of model development and implementation.
The confluence of these and other studies and reports on improving access and fairness in the housing finance system are a welcome sign of potential progress, but are just the beginning of what will need to sustained effort to overcome a legacy of bias.
The S-Curve Archives
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Thoughts
Summary
In 2021, Andrew Davidson & Co. Inc. (AD&Co) proposed a benchmark cohort approach to setting Ability-to-Repay (ATR) Qualified Mortgages (QM) standards. Successful benchmarks based on data are model-free and transparent, and the cohorts must perform consistently in comparison to one another and across time. Our original work used data through the early stages of the pandemic when non-performing loan percentages skyrocketed.
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ThoughtsHow Lowering Capital Costs Affects Higher-Risk Loans
Government-sponsored enterprises (or GSEs) are companies that provide guarantees and financing to originators through the mortgage secondary market. The size and resilience of the GSE secondary market maximizes diversification and liquidity which reduces financial risk and cost of capital. This benefit accrues to conforming borrowers through lower mortgage rates and resiliently available financing.
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ProductsThe release of Andrew Davidson & Co., Inc.’s (AD&Co) new generation of financial engineering tools marks a shift to a new reality; when the traditional benchmark for MBS valuation, the LIBOR/ Swap yield curve, becomes unavailable. Our recent Product Release email informed our readers about the change. In short, our users can:
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ThoughtsFHFA held a listening session for interested parties on its proposed rule on the GSE process for credit scores. The objective is making mortgage underwriting and pricing more accurate and more fair while balancing practical implementation by firms in the mortgage ecosystem. Along with many others, I had the opportunity to provide insights on this proposed rulemaking.
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ThoughtsIn our January 19th blog entitled, A More Equitable Lending System Will Not Be Created by Accident, we described the efforts it will take to overcome not just bias in lending today, but the systemic factors that have limited access to credit in the past and have created an unjust system.
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ThoughtsIn this short blog post I discuss some developments taking place in the flood insurance landscape in the US and look ahead at a few potential directions things could go. I suggest that universal catastrophic flood insurance coverage with a continuation of the introduction of risk-based pricing would be a significant improvement.
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ThoughtsIntroduction
The Government-Sponsored Enterprises (GSEs) entered conservatorship in September 2008. One could view the succeeding thirteen years as a journey back to financial stability with a refined operating model that looks more like a financial utility than a hedge fund. This business model is more compatible with a fair lending mission for a standard-setter that maintains secondary markets under an effective regulator. The GSEs remain the largest part of the housing finance backbone and a resilient funding source during economic stress.
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Thoughts
Around 75% of white American families were homeowners in the first quarter of 2020, according to data from the United States Census Bureau. However, only 44% of Black American families owned their homes at the same time.
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Thoughts
According to a report by the Research Institute for Housing America, climate change risk is rapidly increasing in the housing industry and will continue to demand more attention and regulation in the near future.
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Thoughts
Mortgage market participants are keenly aware that the Federal Reserve has been scaling back its UST and MBS purchases and factoring the outcomes of its actions on stakeholders across markets.