Data provider CoreLogic has released an enhanced version of its RiskModel, which is a commercial analytics application utilized by the major banks and regulators to project future RMBS prepayments, defaults, losses and cash flows.
This new version will be featured at the American Securitization Forum’s ASF 2012 conference being held this week in Las Vegas.
The enhanced model assists users to understand the default and prepayment risk of higher-quality loans that comprise the majority of residential mortgages originated since 2007.
“Most of the private-label market dried up with the crisis so we built prime models that are responsive to the stringent underwriting environment,” said Michael Bradley, a vice president in analytics at CoreLogic.
The product’s enhanced version also leverages a hybrid set of the firm’s data from its LoanPerformance Securities and Loan-Level Market Analytics database.
“This is critical because it combines two powerful elements: security data and loan level market analytics, which is what is fed by servicers to CoreLogic,” Bradley stated.
Additionally, the current iteration of the RiskModel uses the CoreLogic Home Price Index (HPI) to measure home price change across all models such as prime, Alt-A, subprime, first and second-lien mortgage transition and loss given default models. This would allow over 80% in the development dataset to be modeled at the zip-code level.
“Part of the new release is that imbedded in it, we are leveraging CoreLogic’s Home Price Index, which allows users to go down and evaluate 80% of the loans on a ZIP code level – it’s very powerful in that regard,” Bradley said. “The analysis will be more refined in the valuation and calculation of mark-to-market LTV, a key driver that is important to get the analysis right.”
He added that combining the securities covered by RiskModel would comprise 10 vintages going back to 2001. “It brings to bear and speaks to more analysis over a number of business cycles. It incorporates the performance of prime vintages through March 2011.”
Together with CoreLogic’s statistical analysis capabilities, the RiskModel also offers solutions for new accounting, benchmarking and stress-testing requirements for mid- and smaller-sized financial institutions.
The new version can now help publicly-traded financial institutions to implement compliance efforts for the new GAAP accounting rules for impaired assets that will be effective in 2012. Regulated banks can use the updated version in performing stress tests of residential mortgage loans held in their balance sheets.
“The GAAP takes into account impaired assets,” Bradley said. “What is nice about loan-level analysis is you can make long-term forecasts for over a 30-year horizon, but it is also useful for loans that transition into delinquency within 12 months. This would be attractive for traders with short-term positions.”
He added that the short-term analysis is imbedded in the longer-term view of net credit losses and reserve policies.