The mortgage should be used to model any type of public or privately traded residential mortgage (agency or non-agency) or any other type of asset that amortizes to 0 at maturity including some types of CMO or MBS assets.
Cash Flows & Timing
All cash flows on the mortgage occur at the beginning of each projection month. Cash flows occur in the following order. Cash flows higher up the order may impact the amount of cash flows lower down.
- Default Recoveries
- P&I Payments
Model Point File
The following fields are included on the default Slope Library model point file definition for Mortgages.
Asset ID – A string field that is used for identification purposes only. This could be an ID from your asset administration system, the CUSIP, or any other identifier for the model point. This field is not used by any of the variables on the product and is for informational purposes only. It can be safely removed from the model point file definition if not needed.
AVR Line Number – The line number this mortgage should appear in on the Asset Valuation Reserve. This value is used to lookup the appropriate factors for AVR calculation as well as the RBC C-1 Other factor to apply for Risked Based Capital.
Currency – A string value specifying the currency the mortgage is denominated in. This value is used to look up rates from the economic scenario file for market value calculations as well as to set coupon rates on new business model points during the asset purchase process. The value specified here must match on the currencies specified on the economic scenario file definition.
Initial Book Value – The book value of the mortgage as of the projection start date.
Initial Market Value – The market value of the mortgage as of the projection start date.
Issue Date – The original issue date of the mortgage. This is used in conjunction with the Term in Months to determine the maturity date of the mortgage. It is also used to determine when coupon payments occur. This should be the original issue date of the mortgage, which may not necessarily be the date you purchased it.
Loan Amount – The currently outstanding loan principal balance as of the start of the projection OR for new business model points, the initial loan amount to be issued.
Mortgage Rate – The initial interest rate of the mortgage that is used to determine the interest cost of the payments. This rate should be entered as an annual effective rate to ensure the proper payments are calculated.
NAIC SVO Rating – The mortgage rating from the NAIC Securities Valuation Office (SVO).
Rating – The rating agency rating of the mortgage. This value is used to determine the default rates experienced.
Spread – The credit spread over risk-free rates. This spread is expected to include the expected future risk of default inherent in the mortgage price. This value is used to calculation market values of the mortgage as well as when setting the interest rate on new business model points.
Term in Months – The number of months from the original issue date of the mortgage to the maturity date. Ex. a 15 year mortgage would have a value of 180.
This section describes inputs that control how the product works that are not included on the model point file. If these inputs need to vary by model point, then you should modify the formulas to pull the data from an appropriate source.
Default Rate – The default rate is the annual effective rate of defaults. This product is set up to read the default rates from a table which is based on the Moody’s default study. It uses the Rating from the model point file, and the number of years since issue to look up a default rate.
Default Recovery Rate – This specifies a percentage of the current market value of assets that default that will be recovered as cash. By default, this value is set as 60%.
GAAP Classification – An integer value that indicates how the asset is reported on the GAAP Balance sheet. The following 3 options are available.
- Available For Sale (AFS)
- Held to Maturity (HTM)
AFS and Trading assets are held at Market (Fair) Value. Held to Maturity assets are reported at amortized cost. By default the product is set to classify all assets as Available For Sale (1).
Mortgage Rate – The current interest rate being applied to the mortgage principal balance. By default, this value is set at the start date of the mortgage and remains fixed until maturity. The formula can be modified to allow for other mortgage rate structures include various ARM resets.
Prepayment Rate – The prepayment rate indicates the rate at which the mortgage gets pre-paid, thus eliminating future interest earnings. By default, the mortgage product uses the Public Securities Association (PSA) prepayment model. Other prepayment models can be substituted if desired.