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Analysts have no common method of evaluating prepayment risk.
Determining the appropriate prepayment risk level on a loan when servicing mortgage assets is so unpredictable that it requires more than one computer model for basing analyst prognostications.
The Bloomberg model had been thought by many to be the primary predictor model, but a number of servicers are adding Andrew Davidson's model to the list for analyzing prepayment risk on mortgage servicing rights (MSRs).
Andrew Davidson, president of Andrew Davidson & Co. Inc. in New York, spoke at the recent Mortgage Servicing Asset 2002 conference about new development in mortgage analysis.
Davidson said that there is a trade-off between loan-level and pool-level modeling.
There are fewer variables and less data in the pool-level, but even good loan-level modeling can be subject to loan burnout.
Still, there is better information on loan-- to-value ratio (LTV) change using the loan-- level method. It is also difficult to find a larger loan and its impact on prepayments at the pool-level model.
"Size of the...