With the completion of the most recent prepayment study, Banc One Capital Markets is ready to go live with its loan-level performance database - becoming the first sell-side shop to offer such a product. After two and a half years of building the database and roughly 2.5 million loans from the lion's share of subprime mortgage lenders, the product is scheduled for a mid-September launch on BOCM's client website.
Including New Century Financial data last month was the final piece of the puzzle for BOCM. In addition to New Century, Banc One has modeled the loans for AmeriQuest Mortgage, Bank One N.A., Impac Mortgage (hybrid ARM), Irwin Financial, Option One Mortgage, GMAC RFC, GMAC Mortgage (HELOC), and Saxon Mortgage. Although this represents almost all of the subprime mortgage and home equity markets, Banc One welcomes as many issuers as possible to participate. "Our goal is to have all issuers contributing data and then in turn allow the issuers to use the data for internal analysis," said Banc One's Glenn Schultz.
Banc One's data goes back through 1996, allowing for users to compare and contrast by vintage, as well as by issuer and product type. This analytical capability comes at a time when issuers and investors are scrambling to estimate performance of mortgage-related portfolios as interest rates rise.
The data will be made available to the over 700 subscribers of Banc One's Prepayment Insight research series via its website as well as any contributing issuers. Any collateral cohorts created through an analysis would consist of a completely random and blind distribution of loans in the database. This allows issuers, in particular, to compare their own performance statistics to a hypothetical loan pool consisting of numerous originators in its pier group.
As the latest addition, New Century offers an interesting case study. New Century, which is the third largest independent specialty mortgage lender, taps both the ABS primary market and the whole loan market. New Century loans are serviced primarily by Ocwen FSB but also by Countrywide Home Loans Inc. and by the newly established New Century platform. In all BOCM looks at over 91,000 New Century loans, totaling $9.9 billion.
Banc One finds that, despite what seems to be higher-than-average loss severities, loan balances were below the industry average until May 2002, when the minimum was increased to $35,000. Prior to that, the minimum loan balance for New Century had been $25,000.
The loss severity for the fixed-rate portfolio is an eye-popping 47%, with the loans originated prior to 2000 skewing the number. The ARM portfolio has experienced loss severities of a more standard 35%.
Cumulative loss statistics also exhibit an improving trend. Due to expansion into the South Atlantic and West South Central regions during 1998 and 1999, both losses and loss severities are higher for these vintages. Competitive pressures led New Century to offer both lower balances and lend to lower Fico borrowers. Banc One reports that default in these regions within the New Century portfolio over these two years is 1.5X greater than regions where New Century already had a foothold.