Volatile prepayment speeds on student loans have made it difficult for investors to assess how ABS bonds will respond to prepayments. This is why Lehman Brothers created an interactive tool called SPREE that takes an investor's loan-level prepayment assumptions and translates them into deal-level prepayment speeds, which are also based on Bloomberg estimates.

"With the coming changes in the FFELP program and the growth of the private student loan market, it is increasingly important to accurately evaluate student loan WALs," Lehman Brothers analysts said. The investment bank introduced the product to investors last week.

The new calculator also computes the average life of student loan bonds, based on input from loan-level assumptions.

Accessible through Lehman's Web site, SPREE asks investors to input several data points, including deal and collateral information and loan-level prepayment assumptions. Once the program is done working, investors get the best Bloomberg CPR (or PPC) prepayment assumption and the associated average life for each outstanding bond. Lehman said the program could be used for all Sallie Mae consolidation loan transactions, Stafford loan-backed and private deals. Incorporating deal-level speeds is an attempt capture the unique prepayment profile of student loan collateral, said Lehman. By using several other components on its Web site, Lehman says investors can take advantage of some value opportunities in the student loan ABS market through exploiting mispriced bonds.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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