Loan behavior is not homogenous and can vary within a single economic scenario and across different economies. We help our clients assess their residential mortgage credit risk by using loan-level econometric models to determine default, prepayment and severity characteristics. We also provide a detailed view into the default and prepayment behavior between current and delinquent loans for more accurate portfolio management.
Selling residential mortgage loans to Fannie Mae, Freddie Mac, Ginnie Mae and other investors creates mortgage repurchase liabilities on your balance sheet that may arise from breaches of representations and warranties in the loan sale contract or the loss of government insurance due to loan defects. Your estimates of future losses and repurchase liabilities involve many variables which are inherently uncertain and require the use of judgment. MountainView applies a comprehensive modeling approach to assist you in determining appropriate reserve levels.
In our methodology, reserve levels are based on estimates of expected credit losses over the life of the loan. Our calculations require a number of important variables and assumptions which may be unique to you (such as historical repurchase demand rates, appeals success rate, timing lag between default and demand dates, loss severity, loan characteristics, credit and prepayment risk segmentation) and appropriate variables and assumptions obtained from external sources (industry performance, economic data, market data, housing related forecasts). We will consider both published and unpublished industry sources in our analysis.
Our framework has the flexibility to evaluate the sensitivity of model outputs to changes in model inputs or assumptions. In an ever-changing mortgage industry landscape, our approach will evolve to maintain consistency with regulatory, accounting or investor requirements. In this regard, our framework is designed to evaluate credit losses in accordance with the recently released FASB current expected credit loss (CECL) standard.
MountainView provides its loan servicers with the ability to periodically evaluate the economic rationale associated with decisions to repurchase loans from GNMA pools. Repurchasing a defaulted GNMA loan will eliminate the exposure associated with financing the gap between the advance rate which the servicer must pass through to the Ginnie Mae bondholders and the debenture rate that is paid by HUD to the loan servicer. Our comprehensive GNMA early buyout economic analysis incorporates not only the direct costs associated with this interest rate gap but also analyzes your expected recoveries and includes an assessment of whether, following loan repurchase, you should immediately resell or hold that loan for potential re-performance and re-pooling.
As part of our report, we provide you with a framework for evaluating not only the repurchase decision but also generating estimates of your delinquency pipeline based on current exposures.