AFT is pleased to announce the integration of its Default Model and Prepayment Scoring products into Polypaths' fixed income analytic system. These additions, combined with the existing integration of AFT’s Prepayment Models, considerably expand PolyPaths capabilities in the mortgage- backed arena.
Applicable to individual loan analysis as well as for agency and non-agency CMOs, the new models are available immediately and require a separate licensing agreement from AFT.
AFT Default Model
The AFT Default Model is a transition-based model which generates transitions from any of the following delinquency states – 30 days delinquent, 60, 90+, default, liquidation, prepayment – into any other state not logically prohibited. The default model calculates the fraction of the population projected to be in each of the states (0, 30, 60, 90+, default) then projects the transition rates into liquidation and prepayments. The model also calculates loss severity for loans entering liquidation. PolyPaths uses the model’s projections to modify cash-flows for loans and CMOs.
Default Model Integration
The AFT Default Model is integrated with and requires specific output from the AFT Prepayment Model. In addition, it requires a projection of interest rates and a forward projection of the HPI (home price appreciation index) at the MSA (metropolitan statistical area) level. The interest rates projection is generated by PolyPaths; AFT generates the HPI projections. Options for HPI include specifying a single set of MSA level HPI projections via a flat file or having AFT generate a random set consistent with historically based correlations.
Using the AFT Default Model for CMOs requires additional loan-level data for each CMO analyzed. This is required because INTEX does not provide sufficient details about the loans backing a CMO such as MSA, FICO, LTV, etc. AFT provides these data extracts from its proprietary non-agency CMO loan database. The database covers about 80% of outstanding CMOs. If AFT does not have data for the loans that back a particular CMO, a program that creates the needed extract from the user’s own files is available.
AFT Prepayment SCORE
The AFT SCORE is a measure given to a mortgage that represents its propensity to prepay relative to other assets of the same type, coupon and age. A SCORE modifies prepayment projections to increase accuracy. Likewise, a SCORE works like a “rating” – automatically indicating how a loan/pool will perform for prepayments relative to its peers. A SCORE reflects the combined influence of a number of loan indicatives – such as original loan amount, LTV, loan purpose, property type, geography and borrower’s credit rating – on the asset’s tendency toward prepayment.
Prepayment SCORE Integration
Utilizing the AFT SCORE with PolyPaths is simple and applies to both agency and non-agency collateral via these processes:
- Agency CMO/pool
Because the industry data providers do not supply the information necessary to calculate a SCORE for agency pools and CMOs, AFT maintains a master file containing pre-calcuated SCORE ratings for all agency pools. The data is updated daily and made available from an FTP site from AFT. SCORE data can be queried by either pool number or CUSIP.
In analyzing a CMO, PolyPaths first acquires all of the pool numbers of the collateral backing the CMO. Next, it queries AFT’s database to ascertain the SCORE for each pool and calculates an average for average for the CMO. The average SCORE is then sent to the AFT Prepayment Model to modify its projections. - Non-agency CMOs
Non-agency pools are handled with the same data extracts as the AFT Default Model. For each INTEX bucket, a SCORE for the loans comprising that bucket are calculated and used as an input to the AFT Prepayment Model.
