Parameter Name

Details

Calculation

Prepayment

Under the Prepayment scenario, the user can model a prepayment in which a part of the collateral pool prepays their loans, and exists within the pool.

 

The Prepayment will be recognized by the frequency defined under Portfolio > Prepayment.

 

The Prepayment can be defined as a number or a curve.

Choice of Prepayment Units:

  • CPR %
  • CPR $
  • SMM%
  • Asset Level Prepayment %
  • Asset Level Prepayment $
  • ABS/APS %

loan_parameters.pngPrepayment will be calculated after Default, as Default will impact the Scheduled Principal.

Default

Under the Default scenario, the user can model a scenario in which a part of the pool defaults. The default is calculated using SMM and not linearly, as to achieve maximum accuracy and take into account the compounding effect.

 

The default will be recognized by the frequency defined under Portfolio > Loans > General > Default Frequency.

 

Choice of Units:

  • CDR %
  • $

Default Logic:

  • Newly Defaulted Assets = (Collateral Balance - Prepayment) * CDR %
  • Temporarily Defaulted Assets = Newly Defaulted Assets ($) * (1 - Severity (%))
  • Permanently Defaulted Assets = Newly Defaulted Assets ($) * Severity (%)
  • Recovery (Period n + Lag) = Temporarily Defaulted Assets Period n 
  • Loss (Period n + Lag) = Permanently Defaulted Assets Period n 

Calculation:

Note: Prepayment is adjusted for defaulted assets, as defaulted assets will affect the principal.

>Severity

Under the Severity field, the user can specify which fraction of the defaulted collateral will remain in a permanent state of default, and the remaining portion of the pool will be temporarily defaulted but eventually will be recovered.

 

If the user defines 30% severity, 30% will permanently default, while 70% of the pool will be recovered as future cash upon liquidation.

 

>Lag

The Lag field will determine at which period:

  1. Those who have temporarily defaulted will recover.
  2. Those who have permanently defaulted will be recognized as a loss.

 

Lag is Calculated in Months

 

Cumulative Net Loss (CNL)

The Cumulative Net Loss scenario allows users to model a loss that cannot be recovered. CNL will be calculated in the same manner as CDR, but is assumed the default is permanent.

See CDR calculation.

>Timing Curve

The Timing Curve field allows users to define the timing curve in which the loss will be recognized. This allows the user to input an expected lifetime loss and to spread it out over time, or a specific point in time.

 

Which fraction of the current performing balance goes into default.

 

Period 0 will be the latest of the Cut-Off-Date, the Historical Data Through, and Pre-Funded Month. The timing curve inputs must all add up to 100.

 

Delinquency

The Delinquency scenario allows users to model late payments that will be recovered. Delinquency will be calculated as temporary default.

See CDR calculation.

>Cure Rate

The Cure Rate field allows users to define the rate at which the Delinquent assets will be recovered.

 

>Lag

The Lag field allows users to define the period in which the delinquent assets will be recovered.

Lag is calculated in Months.

 

Forbearance Rate

The Forbearance Rate scenario allows users to create a vector for setting the percent of a loan pool that transitions into forbearance.

Forbearance Logic:

The user defines 40% forbearance for period 3, then 40% of the pool of loans will go into a state of forbearance at period 3. The Forbearance will remain for the term defined under Forbearance term, if it is defined as 10, then the forbearance event will end at period 13.

 

See Forbearance for more details.

>Forbearance Term

The Forbearance Term field allows users to define the number of months the forbearance will last. The term will apply to any forbearance event set at the forbearance rate vector.

 

>Forbearance Policy

Four Policy Choices:

1.  No Payment/Balloon

2.  No Payment/Recast

3.  Interest Payment/Balloon

4.  Interest Payment/Recast

 

During Forbearance Term: 

  • No Payment is zero payments during forbearance. The interest is compounded, and the balance is capitalized.
  • Interest Payment is when just the interest over the forbearance amount is paid during the forbearance period.

After Forbearance Term: 

  • Balloon, when payments are resumed, they stay as before the forbearance period. Any overhead debt accumulated during forbearance is paid as a balloon loan at the last loan period.
  • Recast, when payments are resumed, the loan is amortized with a new higher payment amount reflecting the debt accumulation during forbearance.

 

Tax Credit Paid %

The Tax Credit Paid scenario allows users to define a percentage fraction of the performing rep-line of Tax Credit paid.

Tax Credit can be defined under Portfolio > Loans.

See Tax Credit for more details.

Tax Credit Paid = Tax Credit Balance * % Paid