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Static Pool Analysis Reporting

Static Pool Analysis (SPA) is the strength behind Portfolio Credit Risk and Yield Analysis

SPA can provide three key measures affecting overall portfolio yield:

  1. Constant Prepayment Rate (CPR): Defined as prepayments as unscheduled reductions in principal outstanding in the pool of loans.
  2. Default Proportion: Represents the part of prepayments that result from defaults.
  3. Loss Severity: The portion of the loss of principal or interest that is not fully guaranteed or insured.

SPA should include at least 24 to 36 months of history, at a minimum. SEC rules for some purposes require as much as 5 years minimum.

Benefit from using SPA from graphing cumulative credit loss experience over time ("Credit Loss Curve")  Use this data to identify opportunities for improvement in underwriting--for example, by tracking delinquencies and losses by Dealer, by Branch, etc.

SPA is a useful tool to enable Lenders to make informed decisions regarding lending programs based on actual and expected performance of their loans. By using various input assumptions the base assumptions for the portfolio can be validated by the lender.

A static pool is comprised of loans originated with the same underwriting criteria during the same month, quarter, or year. Ideally, all loans originated in the same time period are included in the performance data. This is called "vintage data."

SPA supports the Lender by measuring and predicting the effect of loan performance on loan portfolio yield.

SPA helps the user make informed decisions about whether to increase funding, continue at current levels, or curtail acquisitions of loans based on results of actual yields or an expected yield analysis.

SPA addresses concerns over the effectiveness of controls in place at lender operations to manage lending programs.

The full Risk Alert highlights issues relating to a lenders ability to not only control the activities of a third-party as it relates to underwriting and servicing loans, but also to adequately track overall performance of the loans in the program.

SPA can be used to evaluate just about any type of loan pool performance, regardless of the underlying characteristics of the loans in the pool.

For mature loan pools, compute the actual yield to maturity by computing the internal rate of return on all cash flows. For pools that have not yet matured, compute an expected yield by making assumptions about future performance and computing the internal rate of return on all historical cash flows and expected future cash flows.

Macroeconomic variables can affect future performance. The Lender must consider the economic environment during the static pool period.

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