Transcript GNMA Prepayment

The JP Morgan
Prepayment Model
“It’s all about the
economics”
Presenters:
Cynthia Zander
Joseph Cronin
Richard Lyman
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Key Model Features
Curve at Origination
Spread at Origination
Impact of Loan Size
Home Price Appreciation
Burnout
Turnover Model
Refinancing Model
GNMA Prepayments
Historical Performance
Key Model Features
• Self-selection captured through the
incentive function
• Home Price Appreciation
• No Media Effect
• Transparency of inputs
• Separate FNMA and FHLMC refinancing
models
Key Model Features
• “We define our baseline economic
incentive to be the percent savings.”
• Weighted Average Maturity – WAM
Curve at Origination (CATO)
• Allows the JPMorgan model to capture the
refinancing “seasoning ramp”
• Predict the evolving WALA (Weighted
Average Loan Age)
• Reaffirming steepness vs. flatness of the
curve at origination determines future
refinance of the individual
– Has IO and PO implications down curve
Spread at Origination (SATO)
• Through SATO, various non-standard collateral characteristics are
captured
Impact of Loan Size:
Impact of Loan Size
Home Price Appreciation
Home Price Appreciation
Burnout:
Turnover Model
• Home Price Appreciation
• Seasoning Ramp
• Seasonality/Calendar Effects
Turnover Model
(14% Annually)
Home Price Appreciation / Seasoning Ramp
(Loan Age)
(Appreciation)
Turnover Model
(14% Annually)
Seasonality / Calendar Effects
(Loan Age)
(Appreciation)
Refinancing Model
Shorter Amortization Schedules (incentive)
GNMA Prepayments
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Loan Characteristics
Delinquencies
Servicer Buyouts
Loan Size
GNMA Prepayment
Loan Characteristics
GNMA Prepayment
Delinquencies
GNMA Prepayment
Service Buyouts
GNMA Prepayment
Loan Size
Historical Model Performance
“Past performance is not an indication of future results”