New Unified Total Prepayment Model Enhancement

Posted on 01/30/2015 by

In an effort to help financial professionals better forecast loan prepayments and conduct risk assessments for cash flow and portfolio balances, ZM Financial Systems (ZMFS) released today its new unified total prepayment model (ZMUTP) enhancements.

These enhancements, made to the company’s flagship product, ZMdesk, include:

  • New eligibility framework to reflect the reality of the current refinance practice, as low credit or high loan-to-value (LTV) have significant impact on the borrower’s eligibility for new low mortgage rates refinancing;
  • Build-in refinance sensitivity to loan level attributes credit score (CS), LTV and loan size (LS);
  • Sensitivity to the short and long rates spread, relative to the CATO (Curve at Origination);
  • Mortgage rate adjustment, linked to the SATO (Spread at Origination), LTV, loan size and simulated credit curing;
  • A separate housing turnover model based on regression; and
  • An agency default/buyout sub model, with adjustment done for CS, LTV, etc.

 “Additionally, when recent delinquency information is available, the near-term default can be calculated based on the delinquency status, and the long-term default can slowly converge to SDA projection,” commented Guo Chen, Lead Application Developer, ZMFS.

“While prepayments have the ability to shorten cash flows on mortgage-related instruments, they can also yield a lower return than expected – both of which effect the portfolio balance sheet,” said Butch Miner, CPA, CFA, co-founder, ZMFS. “With our prepayment model, financial professionals now have a more sophisticated tool to help forecast the impact prepayments may have, and help financial institutions better prepare for these scenarios.”

Click here to read the full overview of the ZMUTP model.