The S-Curve

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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Blog - Latest
  • The Signal and The Noise

    Tom Parrent

    Thoughts

    Separating signal from noise is at the heart of what we do at AD&Co. One of the key tools we utilize for that purpose is a sophisticated set of model performance trigger reports. These monthly reports not only alert us to model drift but also point to possible causes for the drift.

    In the mortgage market, changes in behavior on the part of both borrowers and lenders may create gaps between model projections and actual performance. Early analysis of these gaps provides rich information to our modelers based on which they can either identify temporary drifts in model performance or, more importantly, highlight fundamental changes in behavior that need to be captured in our models.

    Every product type is monitored along the following four dimensions, with residuals defined as the monthly difference between projected and actual results:

    Moving average: Are residuals deteriorating over time?

    Trend: Are residuals consistently becoming more positive or negative?

    Bias: Is the model persistently overpredicting or underpredicting actuals?

    Magnitude: Are model misses large enough to matter?

    Multiple types of triggers are useful for determining the seriousness of a breach as well as the type of adjustments that might be warranted in response. For example, a moving average warning might indicate a developing change in borrower behavior that may require either additional explanatory variables or more complex functions of existing variables to tighten the residuals. Alternatively, updated data may provide key information for refitting the model. A small but persistent bias, on the other hand, may be easily corrected with a simple tuning parameter adjustment.

    These triggers also help us monitor performance at the factor level. Rather than simply observing, for example, how GNMA 15-year MBS are performing, we have triggers at different levels of credit score, LTV, note rate, and many other factors. This deep analysis, presented as an easy-to-use dashboard, quickly identifies possible causes of model drift.

    In January, we will present a detailed review of our trigger methodology, and show how we use the reports to help set our modeling priorities in order to explain performance and, when necessary, modify our models to accommodate new behavioral patterns. For now, we will leave you with the following example of a segment of a trigger report for FHLMC MBS using LDM 2.2 with COVID tunings applied.

    Happy Holidays!

    Tom Parrent, Model Risk Management

    tparrent@ad-co.com

     

    October 2020 FHLMC Trigger Report
     

      Trigger Type
      Bias Magnitude MovAvg Trend
    LoanType UPB        
    FHLMC_30YR 2,085,272,108,356 ⬤ ⬤ ⬤ ⬤

     

      Trigger Type
      Bias Magnitude MovAvg Trend
    LoanType Net Coupon UPB        
    FHLMC_30YR 2.0 196,050,740,636 ⬤ ⬤ ⬤ ⬤
    2.5 253,743,515,938 ⬤ ⬤ ⬤ ⬤
    3.0 547,254,721,052 ⬤ ⬤ ⬤ ⬤
    3.5 498,363,756,722 ⬤ ⬤ ⬤ ⬤
    4.0 331,086,483,224 ⬤ ⬤ ⬤ ⬤
    4.5 152,994,012,086 ⬤ ⬤ ⬤ ⬤
    5.0 59,076,412,520 ⬤ ⬤ ⬤ ⬤

     

    Legend
    Pass ⬤
    Watch ⬤
    Warning ⬤

     

  • Andrew Davidson & Co., Inc.’s LoanDynamics Models Empowers Fite Analytics’ MBS Analytics Service

    AD&Co Marketing Team

    News

    Andrew Davidson & Co., Inc. (AD&Co), is proud to support Fite Analytics’ innovative cloud-native Mortgage-Backed Securities Analytics Service. The Fite Analytics solution incorporates AD&Co’s LoanDynamics models that provide forecasts of voluntary prepayments, defaults and losses that drive risk analytics across the mortgage-backed securities market with comprehensive coverage. To read the full press release click here.

     

  • Introducing the New AD&Co Website

    Eric Limjoco

    News

    We are thrilled to announce that Andrew Davidson & Co., Inc. has launched a new look for ad-co.com. Some of the exciting new features of this site include:

    • A dynamic homepage highlighting the firm’s latest innovations, AD&Co client benefits, announcements, and Diversity, Equity and Inclusion efforts.

    • Our new blog titled The S-Curve that offers our latest announcements, product updates, and insights on the mortgage market in real time.

    • An enhanced solutions-focused structure organized by I Work In (includes industry and investment categories), Tools (product pages), Consulting, Insights (announcements and literature), and Client Portal (downloads portal and model resources). 

    • About AD&Co includes Our Company and Diversity, Equity, and Inclusion sections which offer a look into the firm’s foundation, culture, and practices.

    Please take the time to:

    Finally, we’ve updated our Terms of Use and Privacy Statement. You will be asked to accept them when you log in for the first time.

    Please let us know feedback or concerns to ensure we continue to serve you well. Thank you.

Blog - Archives

The S-Curve Archives

  • Andrew Davidson

    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.

  • Eknath Belbase

    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.

  • Mickey Storms, Richard Cooperstein

    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.

  • Andrew Davidson

    Thoughts

    The growing prevalence of artificial intelligence in the mortgage industry is shining a new light on the human biases that have pervaded the industry since its inception. AI is meant to bring fairness and objectivity to mortgage decisions, but it can’t perform fairly if it was built on an unfair system.

  • AD&Co Marketing Team

    Products

    The LDM v3.0.2 library adds AutoLDM to the v3.0.1 library.

    Key benefits include:

  • AD&Co Marketing Team

    Events
    We at Andrew Davidson & Co., Inc. (AD&Co) are once again thrilled to celebrate Pride Month, especially the contributions of LGBTQ professionals in the field of finance including affordable housing policy and the GSEs. This year, in addition to celebrating, we are also paying increased attention to the challenges that LGBTQ individuals face, particularly around issues of housing. Our pride in our LGBTQ staff and community sits alongside our concern about discriminatory lending practices, including in mortgages. As of February 2021, for the first time, lesbian, gay, bisexual, transgender, queer, and questioning (LGBTQ) Americans will be protected from housing discrimination under the Fair Housing Act. 
  • Richard Cooperstein

    News

    For several years, AD&Co has tracked the total rate of return (TRR) performance of the GSE CAS and STACR CRT in its U.S. Mortgage High-Yield Indices. The AD&Co Mid-Tier index constitutes a broad market measure of the TRR performance of GSE CRT. The related sub-indices segregate the CRT market into 4 index Tiers by attachment point, reflective of the credit exposure of the various classes of underlying CRT ranging from B to M1.

  • AD&Co Marketing Team

    Events
    We at Andrew Davidson & Co., Inc. (AD&Co) stand in solidarity with the Asian community and speak out against the xenophobic ignorance that has led to increased racist attacks against Asians. We protest against these hate crimes. This is a time to celebrate the richness that we have gained from the diversity of the Asian culture. We pledge to support the heritage that is part of what makes us American. 
  • AD&Co Marketing Team

    Events

    What does it mean to be mentally healthy? The answer is different for everyone. With all the extra anxiety that many of us have experienced since 2020, whether from uncertainty about COVID-19 or from other experiences that may be new to us, it’s important to acknowledge that it’s alright to not feel alright. Fortunately, there are numerous resources that are available locally, nationally, and in some cases through your workplace or benefits package. We might start by finding out what makes us feel better.

  • AD&Co Marketing Team

    Products

    Today marks the publication of Chris Widman's Quantitative Perspective, a comprehensive article on the newest member of our LoanDynamics suite, the Auto LoanDynamics Model. Auto LDM will be integrated into vendor systems and AD&Co tools, allowing users to perform analysis on auto loan and ABS positions.