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Are you curious about how your organization can uplevel the accuracy of your MSR cost forecasting? The answer lies in leveraging the full spectrum of your data and running analyses at the loan level rather than cohorting. But what does it take to make the switch to loan-level analytics? Our team has put together a short set of recommendations and considerations for how to tackle an otherwise daunting project…

It begins with having the data. Most investors have access to loan-level data, but it’s not always clean. This is especially true of origination data. If you’re acquiring a pool – be it a seasoned pool or a pool right after origination – you don’t have the best origination data to drive your model. You also need a data store, like Snowflake, that can generate loan-loan level output to drive your analytics and models.  

The second factor is having models that work at the loan level – models that have been calibrated using loan-level performance and that are capable of generating loan-level output. One of the constraints of several existing modeling frameworks developed by vendors is they were created to run at a rep line level and don’t necessarily work very well for loan-level projections.

The third requirement is a compute farm. It is virtually impossible to run loan-level analytics if you’re not on the cloud because you need to distribute the computational load. And your computational distribution requirements will change from portfolio to portfolio based on the type of analytics that you are running, based on the types of scenarios that you are running, and based on the models you are using. The cloud is needed not just for CPU power but also for storage. This is because once you go to the loan level, every loan’s data must be made available to every processor that’s performing the calculation. This is where having the kind of shared databases, which are native to a cloud infrastructure, becomes vital. You simply can’t replicate it using an on-premise setup of computers in your office or in your own data center. Adding to this, it’s imperative for mortgage investors to remember the significance of integration and fluidity. When dealing with loan-level analytics, your systems—the data, the models, the compute power—should be interlinked to ensure seamless data flow. This will minimize errors, improve efficiency, and enable faster decision-making.

Fourth—and an often-underestimated component—is having intuitive user interfaces and visualization tools. Analyzing loan-level data is complex, and being able to visualize this data in a comprehensible manner can make all the difference. Dashboards that present loan performance, risk metrics, and other key indicators in an easily digestible format are invaluable. These tools help in quickly identifying patterns, making predictions, and determining the next strategic steps.

Fifth and finally, constant monitoring and optimization are crucial. The mortgage market, like any other financial market, evolves continually. Borrower behaviors change, regulatory environments shift, and economic factors fluctuate. It’s essential to keep your models and analytics tools updated and in sync with these changes. Regular back-testing of your models using historical data will ensure that they remain accurate and predictive. Only by staying ahead of these variables can you ensure that your loan-level analysis remains robust and actionable in the ever-changing landscape of mortgage investment.