June 2025 Models & Markets Update – Predictive Power Amid Economic Uncertainty
Register here for next month’s call: Thursday, July 17th, 2025, 1 p.m.
Each month, we host a Models & Markets call to offer our insights into recent model performance, emerging credit risks, and broader economic indicators. This month, we showcased our responsiveness to shifting macroeconomic dynamics and introduced new transparency elements (i.e., back-testing tools) to our prepayment and credit modeling.
Click here to listen to the entire 23-minute recording, or continue reading for a summary.
Agency Prepay Model: Back-testing and Enhanced Control
We are launching a new loan-level prepayment back-testing tool using nearly all agency loans (FN/FH/GN) aged 10 years or less. The tool runs every month through our models with historical home prices and interest rates. Based on this data, we have an interactive dashboard that will allow users to drill down into model performance with far more granularity than currently possible.

Key Enhancements to Prepay Model v. 3.8
A soon to be released version of the prepay model will include:
- User-defined slope multipliers for both Out-of-the-Money (OTM) and In-the-Money (ITM) performance, offering finer control over refinance sensitivity and turnover behavior.
- Independent knob control across CONV 30, CONV 15, FHA, and VA loan types.

A redesigned ARM prepayment framework, derived from the fixed-rate model. The new ARM component includes:
- A realistic payment shock element that aligns prepayment spikes with rate reset events.
- Improved seasonality and aging ramp that reflects empirical loan behavior

These updates give users the ability to more precisely tune model responses under a variety of macroeconomic and borrower scenarios.
Credit Model: V7 and Delinquency Transitions
The delinquency transition matrix incorporated into our new Credit Model V7 provides users a more nuanced credit risk assessment. This model works in conjunction with the enhanced prepayment model to better simulate the joint dynamics of default and prepay behavior across economic cycles.

Macroeconomic Context: Rates and Risk in a Holding Pattern
We remain cautious in our outlook for the remainder of 2025 and into 2026:
The Fed Funds Rate is expected to remain elevated—currently in the 4.25–4.50% range—with the first rate cut likely in September. By year-end 2025, the market expects it to settle around 3.75–4.00%.

Mortgage rates remain stubbornly high, hovering above 6.5%, putting pressure on origination volumes and reinforcing the value of accurate prepayment modeling.
Home prices and broader macro indicators like unemployment and PCE inflation remain stable, suggesting a “wait-and-see” mode for both consumers and investors.
What’s Next: More Models, More Tools, More Insights
We continue to expand our Platform with new analytics, model documentation, and client-facing tools. Users can soon access the new back-testing report directly within the Platform, alongside these updated prepayment and credit models. These developments reflect our commitment to model transparency, data-driven innovation, and practical tools for real-time market adaptation.
Contact us to learn more.