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Category: Featured Webinar

RiskSpan’s June 2025 Models & Markets Call

Register here for our next monthly model update call: Thursday, June 19th at 1:00 ET.

Note: This post contains highlights from our May 2025 monthly modeling call, which delivered insights into the current economic climate, mortgage model enhancements, and borrower behavior trends. You can register here to watch a recording of the full 23-minute call.

Here’s what you missed:

Prepayment Model Performance and Enhancements

RiskSpan’s prepayment model continues to exhibit strong alignment with observed data across all coupon cohorts. During the call, we showcased updated backtesting results for 2022 FN/FH cohorts across multiple coupon bands (1.5s–3.5s, 4.0s–5.5s, and 6.5s), revealing that projected vs. actual CPRs remain closely correlated, even in volatile rate environments.

Additionally, RiskSpan has introduced a Non-QM-specific prepayment model to address behavioral differences in this segment. This is particularly timely, given elevated delinquency trends discussed later in the session.

Our recently enhanced Credit Model 7, leveraging a delinquency transition matrix, is expected to be released by the end of May and will provide a more granular view of credit migration patterns.

Spread at Origination: A Key Risk Signal

Spread at Origination (SatO), the difference between the borrower’s rate and the prevailing PMMS rate at application, is emerging as a critical predictor of refinance activity. Lower SatO values suppress prepayments even in pools with favorable coupons.

Using MBS loan-level data, we illustrated how SatO dynamics impact investor vs. owner-occupied loans, with notable geographic variation. States like CA, FL, and NY show materially different average rates for investor loans, independent of LLPA effects.

As a forward-looking initiative, we are developing a generalized spread model that isolates residual pricing differences not explained by known borrower or loan characteristics. This could further enhance predictive power by benchmarking loans against peer cohorts defined by origination date, FICO, occupancy, and geography.

Macroeconomic Outlook: Sticky Rates and Stable Housing

The economic backdrop remains mixed:

  • Mortgage rates hover around 6.95%, with no near-term relief in sight.
  • The Fed Funds Rate is projected to stay elevated, with the first potential cut not expected until September 2025. Even then, consensus suggests only a modest decline to 3.75–4.00% by year-end.
  • Home prices are largely stable, as reflected in the Case-Shiller Index. Year-over-year appreciation remains positive but muted.
  • Unemployment stands at 4.0%, and inflation is moderating but still above target.

This persistent high-rate environment will continue to dampen refinance activity and challenge affordability, reinforcing the importance of modeling spread-driven behavior accurately.

Non-QM Delinquencies Spike

The bad news: Delinquencies are surging within the Non-QM sector, particularly for 2022–2023 vintages:

  • DSCR/investor loans are showing delinquency rates an order of magnitude higher than conventional loans.
  • This reinforces the need for robust credit modeling, especially in the private credit space where standard agency risk buffers don’t apply.

The good news: RiskSpan’s new NonQM credit and prepay models are now live to support more accurate surveillance of these exposures.

Contact us to learn more or to request a free demo of our platform and models.


Mortgage Prepayment and Credit Trends to Watch

Register here for our next monthly model update call: Thursday, April 17th at 1:00 ET.

Note: This post contains highlights from our March 2025 monthly modeling call. You can register here to watch a recording of the full 28-minute call.

Mortgage and credit markets remain dynamic in early 2025, with macroeconomic conditions driving both volatility and opportunity. In yesterday’s monthly model call, my team and I shared key insights into current market trends, model performance, and what to expect in the coming months.

Market Snapshot: A Mixed Bag

After trending downward in February, mortgage rates ticked up slightly in early March. Despite the fluctuation, expectations are for rates to remain relatively stable until at least summer 2025. Most mortgage-backed securities (MBS) are still deeply out of the money, making housing turnover—not rate refinancing—the dominant prepayment driver.

Macroeconomic signals remain mixed. While unemployment is still low and wage growth continues, inflation shows signs of persistence. The Fed is expected to hold the Fed Funds Rate steady through mid-year, with a potential first cut projected for June. Credit usage is creeping higher—especially in second liens and credit cards—hinting at growing consumer debt stress.


Model Performance and Updates

Prepayment Model

RiskSpan’s prepayment model continues to track closely with actuals across Fannie Mae, Freddie Mac, and Ginnie Mae collateral. The model shows:

  • Prepayments rising slightly, particularly among 2023 vintage loans in response to rate moves.
  • Delinquent loan behavior providing rich insights: For “out of the money” (OTM) collateral, delinquent loans are showing higher turnover speeds than performing ones, as borrowers try to avoid foreclosure.
  • Turnover sensitivity to borrower FICO scores is especially pronounced for delinquent loans—highlighting the need for granular credit analytics.

These behavioral insights are informing the next version of our prepayment model, which will incorporate GSE data research to enhance forecast accuracy.

Credit Model v7: A Leap Forward

RiskSpan’s new Credit Model v7—now available—is a significant upgrade, built on a delinquency transition matrix framework. This state-transition approach enables monthly projections of:

  • Conditional Default Rates (CDR)
  • Conditional Prepayment Rates (CPR)
  • Loss severity and liquidated balances
  • Scheduled and total principal & interest (P&I)

The model’s core components include:

  • A vector-based severity model
  • A robust liquidation timeline module
  • Loan-level outputs by delinquency state (including foreclosure and REO)

By modeling the lifecycle of loans and MSRs more explicitly, Credit Model v7 delivers deeper insight into portfolio credit performance, even in volatile markets.


Emerging Risks and Opportunities

Consumer credit balances—especially HELs and HELOCs—have grown significantly, fueled in part by debt consolidation. Credit card utilization has jumped from 22% in 2020 to nearly 30% as of late 2024, indicating growing financial strain.

Meanwhile, delinquencies in the Non-QM space (2022-2023 vintages) are rising—suggesting that investors need enhanced tools to monitor and manage these risks. RiskSpan’s tools, including the enhanced credit model and daily prepay monitoring, help investors keep pace with these shifting dynamics.


Looking Ahead

RiskSpan’s modeling team remains focused on:

  • Continuing to improve prepayment modeling with newly available GSE data
  • Rolling out and enhancing Credit Model v7 for broader use cases
  • Providing clients with forward-looking analytics to anticipate credit stress and capitalize on market dislocations

Be sure to register for next month’s model update call on Thursday, April 17th at 1:00 ET.

Want a deeper dive into the new Credit Model or Prepay insights? Contact me to schedule a session with our modeling experts.



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