Recently, senior credit modeler, Daniel Swanson had the pleasure of speaking with Rob Kessel from the Panoramic Capital Academy podcast titled, “Modeler’s Perspective on Prepayment Modeling.”  This podcast is part of the curriculum in Panoramic Capital Academy's capital market course, an accredited 14-week class for capital market professionals, including hedging mortgage pipelines and valuing mortgage servicing rights (MSRs).  The discussion covered topics like data gathering, how to forecast speeds in an ever-changing world, validating results and how modeling evolved to include more loan-specific variables.

Click here to listen. 

About Panoramic Capital Academy and Consulting

Panoramic Capital Academy and Consulting offers an advanced mortgage capital markets training program, providing accessible and foundational education to the mortgage industry to accelerate careers, improve financial performance, and foster respect in the industry.  Panoramic also provides mortgage capital market consulting services.  

More information can be found at www.panoramiccap.com.

The earliest paper we found examining the impact of climate risks on house prices was from 2017, which found a relationship between elevation/sea level rise and house price differences.^[1]

We built our climate-conditioned HPA model in 2022 based on the idea that an increase in insurance costs would impact house prices (something we had not studied yet) in the same way that an increase of the same size in mortgage rates would impact house prices (something that we were quite familiar with).

The real world evidence for this relationship has been accumulating recently – on October 15, 2024 the Washington Post published an article entitled “Where climate change poses the most and least risk to American homeowners” which contains the following chart (which is based on an analysis of 2 million home sales in Florida since 2000):

We can see from the lines comparing lower and higher flood risk properties that until very recently, the housing market was not pricing for flood risk. But now there is a clear divergence in price trend.

For the particular case of Florida, there is reason to believe that this trend will strengthen in the near term: until recently, the only reason most people got flood insurance was that they were in a FEMA flood zone and they were required to buy a NFIP policy in order to obtain a mortgage. FEMA flood zone maps are known to be extremely outdated. However, with the accumulation of flooding incidents occurring outside those zones and the publishing of flood risk scores on Zillow, buyers are becoming much more aware of flood risk whether or not a property is in a FEMA zone.

Additionally, the state of Florida is gradually requiring all homeowners buying insurance through Citizens (its FAIR plan for homeowner’s insurance) to also have flood insurance regardless of flood zone status. This requirement started in 2024 for houses priced $600,000 and above, and by January 1, 2027, will extend to all properties insured by Citizens. At the end of 2023, Citizens was the largest insurer in Florida with 15% of all policies and over half a trillion dollars of insured properties.

Furthermore, the different post-event experiences of homeowners who have flood insurance versus those who didn’t is likely to encourage more homeowners – even those not taking a policy through Citizens – to add flood insurance to their property. So flood risk, at least in Florida, is getting closer to being fully priced into real estate values.

While the Washington Post article only discusses flood risk, all borrower costs matter to housing affordability – property taxes, homeowner’s and flood insurance, and the mortgage (leaving aside the psychological costs of nuisance events that don’t rise to the level of filing a claim). To truly capture the potential impact on both house prices and borrower behavior of all these rising costs, a fully climate conditioned approach, combining home prices as well as borrower behavior models (how will prepayment, delinquency, default and loss severity be affected?) is required. This is what our Climate Impact Suite offers.

 [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3073842&itid=lk_inline_enhanced-template

Andrew Davidson & Co., Inc (AD&Co) is pleased to announce a new alliance with Mortgage Capital Trading, Inc. (MCT), a leading provider of mortgage capital market solutions.

MCT’s mortgage servicing rights valuation model, MSRlive!, now supports AD&Co’s Agency, Agency+, Non-Agency and Multifamily LoanDynamics Model (LDM), providing clients with forecasts of prepayments, defaults and loss given defaults on agency pools and whole loans, as well as non-agency and multifamily loans and securities, respectively.

Valuation tools are vital to making investment decisions and MSRlive! provides MSR portfolio managers and mortgage bankers with the tools necessary to manage their MSR investments. Coupled with AD&Co’s LDM, clients can now access to a multi-model framework when building and managing their MSR portfolios.

AD&Co would like to thank MCT for their dedication to offering LDM through the MSRlive! platform and servicing our mutual clients to ensure their success.

Are you interested in learning more about accessing LDM via the MSRlive! platform? Please contact Bill Shirreffs at bshirreffs@mctrade.net.

At Andrew Davidson & Co., Inc. (AD&Co), our dedication to Diversity, Equity, and Inclusion (DEI) has been a cornerstone of our values. We established our DEI Committee in 2020, following the tragic murder of George Floyd. Despite the evolving landscape, including the recent U.S. Supreme Court decision impacting affirmative action in higher education, we remain steadfast in our commitment to fostering an inclusive environment that strengthens both our employees and the company.

On August 15, we came together at our New York office for a meaningful community service project. Partnering with Volunteers of America® Greater New York's Operation Backpack®, our team assembled and distributed backpacks filled with essential school supplies for unhoused students across New York City. These backpacks, which serve elementary, middle, and high school students, included a personal touch: handwritten notes wishing each student a successful school year. We believe every child deserves access to the resources they need to thrive, and we're honored to contribute to easing their transition into a new school year.

Later that day, our team participated in the "Other Side of Wall St." walk led by Kamau Ware of Black Gotham Experience. The walk began with a naming ceremony introducing members of North America's first Free Black Settlement. As we explored the historical impact of these early settlers on New York City, we were struck by the absence of formal recognition for their contributions in the city's landmarks. Kamau's insightful stories and imagery brought to light the rich yet often overlooked layers of history, reminding us of the importance of acknowledging and celebrating all aspects of our past. As a Black woman in mortgage finance, I take pride in working for a firm like AD&Co, which not only supports but actively promotes the values of diversity, equity, and inclusion. Our ongoing efforts are a testament to our commitment to elevating our employees, enhancing our business, and advancing our industry.

Tune in to Eknath Belbase's interview with Michelle Stepien Breier & Richard Cooperstein as they discuss their latest Pipeline article “Improving Mortgage Data: A Data Exchange for the Mortgage Ecosystem.” The interview highlights key points from the article as they share their vision of a mortgage data exchange. If you’re intrigued and eager to learn more, hit play or click the link to read the full article! 

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