The Specified Pool Analytics Feature in RiskManager

Aug 5, 2015

This Technical Note introduces the Specified Pool Analytics feature, and its tuning methodology used by the Agency Mortgage-Backed Securities collateral model in RiskManager. This new feature takes into account the so-called loan properties, such as original loan size, loan-to-value, FICO score, geographic distribution, property type, loan purpose, and occupancy, to improve the prepayment speed forecasts for specified mortgage pools.

The Specified Pool Analytics Tuning methodology is applied to bring the prepayment speed forecasts closer to observed historical speeds during the last three months for specified pools. The new tunings affect the valuation of fixed-rate agency pass-through securities. The Specified Pool Analytics feature is only applicable to the UsMBS model.
This paper also shows the effect of the Specified Pool Analytics combined with its tunings on the modeled prepayment speeds and effective durations for few examples.

Why is this topic of interest?
Fine tuning the prepayment projections underlying MBS valuation are in the center of attention during market changes. The Specified Pool Analytics Feature offers easy to use adjustments for Specified Pools' prepayment speeds.

Who should read this paper?
Risk managers who seek an additional view on prepayments, or who are already using MSCI Tuning Overlay in RiskManager to improve prepayment speed forecasts for agency RMBS.