Prepayment is the single most important consideration in valuing mortgage cash flows.

Applied Financial Technology has produced a state-of-the-art behavioral mortgage prepayment model that moves beyond traditional prepayment models to provide a flexible trading-quality system.

The model offers a powerful open architecture system that integrates directly with your proprietary trading, portfolio management or valuation system or can be used on a stand-alone basis.

This gives clients the flexibility to manage their portfolio and make more informed valuation or trading decisions.

AFT's prepayment model is stable. The model is based on borrowers' reactions to changes in the environment that cause prepayments (such as housing turnover or refinance). Because these reactions change very slowly, AFT's model is also slow to change.

Modeling Methodology

Prepayments are influenced by both borrower constraints and economic incentives that change everyday.

Driving forces modeled by AFT include: interest rate, structure of burnout, details of origination information (points paid, extent of premium coupon), age of loan, loan type, original loan to value, loan balance and credit rating.

ARMS

Projecting ARM prepayments has been considered an extremely difficult and, according to some, essentially impossible task. AFT finds that ARMs, although somewhat more volatile than fixed rate, are quite tenable if one takes advantage of all of the information available for an ARM.