Register here for our next monthly model update call: Thursday, November 20th at 1:00 ET.
For highlights from our most recent call (October), click here.
Contact us to learn more or to request a free demo of our platform and models.
Register here for next month’s call: Friday, June 20th, 2025 (pushed back one day on account of Juneteenth).
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 spotlighted model backtesting updates, macroeconomic conditions, and market analytics that are shaping investment strategies across loans, securities, and private credit.
Click here to listen to the entire 23-minute recording, or continue reading for a summary.
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 (SatO), the difference between the borrower’s rate and the prevailing PMMS rate at application, is emerging as a critical predictor of refinance activity. Higher 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.
The economic backdrop remains mixed:
This persistent high-rate environment will continue to dampen refinance activity and challenge affordability, reinforcing the importance of modeling spread-driven behavior accurately.
The bad news: Delinquencies are surging within the Non-QM sector, particularly for 2022–2023 vintages:
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.
Register here for our next monthly model update call: Thursday, May 15th at 1:00 ET.
Note: This post contains highlights from our April 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 28-minute call.
Here’s what you missed:
With mortgage rates rebounding to 7%, the panel began by acknowledging the choppy waters ahead, flagging 2025 as a year likely to see persistent rate volatility. As recession risks grow and consumer stress indicators rise, modeling accuracy becomes more important than ever.
Notably, consumers are already strained:
RiskSpan’s newly released Credit Model v7 marks a significant upgrade in loan performance modeling:
This model empowers users with granular delinquency and cash flow forecasting, critical for managing portfolios amid market uncertainty.
Key findings here included:
RiskSpan’s continued focus on benchmarking these data sources helps refine both near-term and long-term modeling strategies.
The panel spotlighted borrowers with FICO scores over 800, revealing some counterintuitive dynamics:
These insights underscore the nonlinear and evolving nature of borrower behavior, especially under fluctuating rate environments.
RiskSpan’s Prepayment Model continues to track closely with actuals, validating its calibration even in today’s turbulent landscape. Combined with Credit Model v7, clients now have powerful tools for capturing credit and prepayment risk with more accuracy than ever.
Be sure to register for next month’s model update call on Thursday, May 15th 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.
Earlier this week, RiskSpan hosted a webinar featuring a panel of experts who provided a comprehensive look at the current state of the mortgage market, with a particular focus on mortgage servicing rights (MSRs), market analytics, and risk management strategies. Featuring commentary from Michael Fratantoni, Chief Economist of the Mortgage Bankers Association, alongside Geoffrey Sharp of Eris Innovations and RiskSpan’s Dan Fleischman and Chris Kennedy, the event offered a timely and in-depth discussion on the evolving challenges and opportunities confronting bulk traders in the MSR space.
Register here to listen to the full webinar recording.
Mike Fratantoni’s introductory message was clear: the U.S. economy is showing signs of deceleration, and that slowdown is being felt acutely in the housing and mortgage sectors.
Fratantoni highlighted that inflation, while trending downward, remains a key concern. Mortgage rates, elevated through much of 2024, have shown some easing in recent months but remain a barrier to both home purchases and refinancing activity. He pointed to a growing recognition that the global and U.S. economies are slowing — and an increasing risk they could slow more than expected.
This economic climate has direct implications for mortgage originators and servicers. Origination volumes have been suppressed due to affordability challenges and low housing inventory. Meanwhile, servicers are navigating increased costs and evolving regulatory expectations, making effective risk management more important than ever.
Dan Fleischman and Chris Kennedy then dove more deeply into the MSR market. Despite market headwinds, investor appetite for MSRs remains robust, largely driven by the asset’s countercyclical appeal and attractive risk-adjusted returns.
Kennedy explained that bulk MSR trading is still quite active, with some notable dislocation between bid and ask prices depending on loan characteristics and servicing costs. He also emphasized the importance of data quality in navigating this market, especially given the divergence in GSE prepayment behavior and the wide range of models being used to value servicing portfolios.
Fleischman expanded on the analytics side, walking through how servicers are increasingly relying on machine learning and historical GSE data to refine valuation and hedging strategies. “There’s a clear shift towards more granular modeling,” he noted, “not just at the loan level, but factoring in behavioral differences by servicer, geography, and even sub-servicer.”
Geoff Sharp of Eris Innovations focused on how MSR investors are using Eris SOFR swap futures to manage interest rate exposure. As interest rates remain volatile, the duration and convexity risk associated with MSRs has become harder to hedge using traditional instruments.
“Zero swaps give investors a cleaner, more precise hedge,” Sharp explained. Unlike standard interest rate swaps, which exchange floating for fixed payments, zero-coupon swaps strip out the coupon and focus purely on duration. This allows for tighter alignment with MSR portfolio sensitivities, especially in high-rate environments where convexity matters.
Sharp also emphasized that the adoption of these instruments is no longer limited to the largest institutional players. “We’re seeing more mid-sized servicers look into this,” he said, “because the volatility has made traditional hedges more expensive and less effective.”
Panelists frequently came back to the complexity of modeling prepayments in today’s market. With refinance incentives mostly absent, borrower behavior is increasingly driven by non-rate factors like relocation, cash-out needs, and credit events.
Dan Fleischman noted a recent shift in GSE delivery data that is reshaping how investors think about prepay risk. “We’re seeing very different prepayment speeds by seller and servicer,” he said. “Some of that is a function of portfolio composition, but some of it is clearly behavioral or operational.”
RiskSpan has been at the forefront of efforts to normalize and benchmark this data, providing servicers with a clearer picture of how their MSR assets may perform relative to the market. The panel stressed that accurate, up-to-date GSE data is critical not just for pricing MSRs, but also for identifying outliers and opportunities in both acquisition and sale.
In the final portion of the webinar, panelists discussed the regulatory and operational realities facing servicers in 2025. Compliance costs continue to rise, driven by both federal scrutiny and investor expectations around data security, customer experience, and portfolio transparency.
Chris Kennedy underscored the importance of operational efficiency, especially as revenue margins tighten. “Servicers are having to do more with less,” he said, “which means automation, smart analytics, and scalable infrastructure are no longer optional — they’re table stakes.”
There was also discussion around how MSR buyers are performing increasingly detailed diligence, not only on loan-level characteristics but on the servicing platform itself. Buyers want to understand call center metrics, delinquency management strategies, and borrower retention initiatives before committing capital.
Here are some of what we consider to be the webinar’s key takeaways:
Contact us to discuss, learn more, or get a free demo or trial of RiskSpan’s award-winning MSR solution.
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.
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.
RiskSpan’s prepayment model continues to track closely with actuals across Fannie Mae, Freddie Mac, and Ginnie Mae collateral. The model shows:
These behavioral insights are informing the next version of our prepayment model, which will incorporate GSE data research to enhance forecast accuracy.
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:
The model’s core components include:
By modeling the lifecycle of loans and MSRs more explicitly, Credit Model v7 delivers deeper insight into portfolio credit performance, even in volatile markets.
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.
RiskSpan’s modeling team remains focused on:
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.
Webinar: Tuesday, March 25th | 1:00 ET
MSR Bulk Trading Insights
Join us for an update from MBA’s Chief Economist, Michael Fratantoni, on the current state of the MSR market.
Then, stick around for actionable strategies from RiskSpan’s Chris Kennedy and Dan Fleishman on how to gain a competitive edge, including:
– How to effectively leverage strategic bidding to maximize outcomes.
– The importance of on-the-fly, ad hoc analysis in responding to market dynamics.
– Best practices for MSR valuations and trading analytics to ensure precise decision-making.
Whether you’re scaling your MSR portfolio or seeking to optimize your trading processes, this webinar will equip you with the tools and insights to stay ahead in a competitive landscape.
Panelists
Michael Fratantoni, Chief Economist, Mortgage Bankers Association
Chris Kennedy, Director, RiskSpan
Dan Fleishman, Head of Client Success, RiskSpan
Note: This post contains highlights from our February 2025 monthly modeling call. You can register here to watch a recording of the full call (approx. 25 mins).
As we move further into 2025, key trends are emerging in the mortgage and credit markets, shaping risk management strategies for lenders, investors, and policymakers alike. RiskSpan’s latest model update highlights critical developments in mortgage prepayments, credit performance, and consumer debt trends—offering valuable insights for investors, traders, and portfolio/risk managers in these spaces.
Prepayment speeds have continued to decline in Q1 2025, largely due to a lack of housing turnover and persistently high mortgage rates. While a drop in rates during Q3 2024 temporarily mitigated lock-in effects for borrowers with very low rates, MBS speeds remain low across most cohorts.
Key drivers of observed prepayment behavior include:
The private credit market continues to expand, with increasing Non-QM and second lien originations. However, a concerning delinquency trend has emerged, with delinquencies among 2022-2023 Non-QM vintages now rising faster than among older vintages.
Consumer debt continues to rise rapidly, raising concerns about long-term credit performance:
To address these evolving market conditions, RiskSpan has rolled out key enhancements to its mortgage and credit models:
The evolving mortgage and credit landscape underscores the importance of robust modeling and risk assessment. With prepayments slowing, debt burdens rising, and consumer credit trends shifting, lenders and investors must adapt their strategies accordingly.
