Author Topic: Constant Prepayment Rate (CPR)  (Read 7789 times)

ThinleyWangchuk

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Constant Prepayment Rate (CPR)
« on: October 06, 2013, 03:48:40 AM »
Anyone know the historical CPR rate or have any statistics on this?

Fred

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Re: Constant Prepayment Rate (CPR)
« Reply #1 on: October 06, 2013, 01:11:20 PM »
Mine stabilized at around 8%, which loosely speaking is about 133% PSA (http://en.wikipedia.org/wiki/PSA_prepayment_model).  In general, it looks like 125% - 150% PSA seems reasonable.

Basic profile of my portfolio:
- size: 2500+ notes
- weighted-average rate: 19%
- age: slightly over 2 years old
« Last Edit: October 06, 2013, 01:17:07 PM by Fred »

rawraw

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Re: Constant Prepayment Rate (CPR)
« Reply #2 on: October 06, 2013, 01:20:38 PM »
Are you converting it to PSA because you found it behaves like a 133 PSA curve or you are just used to dealing with PSA?

ThinleyWangchuk

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Re: Constant Prepayment Rate (CPR)
« Reply #3 on: October 06, 2013, 03:03:40 PM »
Thank you Fred.
Mine stabilized at around 8%, which loosely speaking is about 133% PSA (http://en.wikipedia.org/wiki/PSA_prepayment_model).  In general, it looks like 125% - 150% PSA seems reasonable.

Basic profile of my portfolio:
- size: 2500+ notes
- weighted-average rate: 19%
- age: slightly over 2 years old

Fred

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Re: Constant Prepayment Rate (CPR)
« Reply #4 on: October 07, 2013, 02:08:17 AM »
Are you converting it to PSA because you found it behaves like a 133 PSA curve or you are just used to dealing with PSA?

More of the second case (used to dealing with PSA). 

I have not spent enough time to confirm the first one.  Seems like a good exercise, though.

rawraw

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Re: Constant Prepayment Rate (CPR)
« Reply #5 on: October 07, 2013, 08:50:55 AM »
Are you converting it to PSA because you found it behaves like a 133 PSA curve or you are just used to dealing with PSA?

More of the second case (used to dealing with PSA). 

I have not spent enough time to confirm the first one.  Seems like a good exercise, though.
The reason I ask is that since most LC notes would mature right after the 133 PSA curve "peaks" it may not be a useful way to model those like a PSA curve.  But can't know for certain without looking at data. 

Fred

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Re: Constant Prepayment Rate (CPR)
« Reply #6 on: October 07, 2013, 12:06:22 PM »
The reason I ask is that since most LC notes would mature right after the 133 PSA curve "peaks" it may not be a useful way to model those like a PSA curve.  But can't know for certain without looking at data.

Agreed.

- LC prepayment curve might not look like the PSA curve at all.   Will need to analyze LC Payment History data to see this.

- Even if it does, I do not think the peak will occur around the 2-yr time -- when I mentioned "2-yr", it was more about an aspect (age) of my portfolio, not about the peak time of LC prepayment curve.   

- The peak on PSA model starts on the 30th month on a 360-month loan.  If we can translate this loosely for LC loans, we might see the peak on LC prepayment curve as early as on the 3rd month (for 36-month loan).

- As the Wikipedia article says, "1667 PSA is roughly equivalent to 100 CPR."  I was just comparing 8% and 6% to come up with 133% PSA.  I did use the terms "loosely speaking" on my first response.  ;) 

rlv99

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Re: Constant Prepayment Rate (CPR)
« Reply #7 on: October 07, 2013, 01:17:49 PM »
weighted-average rate: 19%

Fred- I have only been on the LC platform since April, 2013.  I have about 1500 notes at a weighted 15.7%.  While I do I have an inventory of B's from the first few months which I accumulated while getting to know the strategies, they wouldn't raise the average more than a point.  So, I find your 19% rather remarkable!

 Besides your astute investing,  is the higher %, iyo,  the result of the trading environs that existed 1-2 years ago?   I view you as a cautious investor from your posts so I am curious about the early "riches" that may have been found, and I  missed, on LC, if you would be so kind as to share.  I deal only in 36 month notes, btw.

rawraw

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Re: Constant Prepayment Rate (CPR)
« Reply #8 on: October 07, 2013, 02:09:26 PM »
The reason I ask is that since most LC notes would mature right after the 133 PSA curve "peaks" it may not be a useful way to model those like a PSA curve.  But can't know for certain without looking at data.

Agreed.

- LC prepayment curve might not look like the PSA curve at all.   Will need to analyze LC Payment History data to see this.

- Even if it does, I do not think the peak will occur around the 2-yr time -- when I mentioned "2-yr", it was more about an aspect (age) of my portfolio, not about the peak time of LC prepayment curve.   

- The peak on PSA model starts on the 30th month on a 360-month loan.  If we can translate this loosely for LC loans, we might see the peak on LC prepayment curve as early as on the 3rd month (for 36-month loan).

- As the Wikipedia article says, "1667 PSA is roughly equivalent to 100 CPR."  I was just comparing 8% and 6% to come up with 133% PSA.  I did use the terms "loosely speaking" on my first response.  ;)
I assumed you measured the PSA because you use it in your model somehow :)  Perhaps you don't

Fred

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Re: Constant Prepayment Rate (CPR)
« Reply #9 on: October 07, 2013, 09:37:08 PM »
weighted-average rate: 19%

Fred- I have only been on the LC platform since April, 2013.  I have about 1500 notes at a weighted 15.7%.  While I do I have an inventory of B's from the first few months which I accumulated while getting to know the strategies, they wouldn't raise the average more than a point.  So, I find your 19% rather remarkable!

 Besides your astute investing,  is the higher %, iyo,  the result of the trading environs that existed 1-2 years ago?   I view you as a cautious investor from your posts so I am curious about the early "riches" that may have been found, and I  missed, on LC, if you would be so kind as to share.  I deal only in 36 month notes, btw.

No, there were no "early riches."  :(   Like many others, I also invested in the low-risk, low interest-rate notes in the beginning (mid-2011).  However, as I gathered more data and confidence, I began to invest in higher interest rates notes.  I measure risks not by interest-rate alone; so there are high interest notes that I deemed as having lower risks compared to their peers.

I also began selling the low interest-rate notes -- mainly because I ran out of cash to invest -- and this increased the WAR.  Most of my notes now are in D-G grades.
« Last Edit: October 07, 2013, 11:32:00 PM by Fred »

Fred

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Re: Constant Prepayment Rate (CPR)
« Reply #10 on: October 07, 2013, 11:36:42 PM »
I assumed you measured the PSA because you use it in your model somehow :)  Perhaps you don't

My model is based mostly on APT (http://en.wikipedia.org/wiki/Arbitrage_pricing_theory).

Prepayment is a big thing in Agency MBS; however, like New Jersey Guy, I do not see prepayment as a big thing in P2P lending.  ;)

rawraw

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Re: Constant Prepayment Rate (CPR)
« Reply #11 on: October 08, 2013, 07:20:44 AM »
I assumed you measured the PSA because you use it in your model somehow :)  Perhaps you don't

My model is based mostly on APT (http://en.wikipedia.org/wiki/Arbitrage_pricing_theory).

Prepayment is a big thing in Agency MBS; however, like New Jersey Guy, I do not see prepayment as a big thing in P2P lending.  ;)
Cool deal man.  You quants and your fancy models :)

Rob L

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Re: Constant Prepayment Rate (CPR)
« Reply #12 on: October 08, 2013, 02:19:56 PM »
The "pre-payment" problem was THE problem preventing the securitization of home mortgages way back when. Salomon Brothers (Ranieri) came up with a solution (tranches), that paved the way to the multi-trillion dollar industry it is today. It's been a long time since I read Liar's Poker by Michael Lewis, but I remember it's a very good read and tells this story well.

For P2P not that of a big deal, but I have had far more paid in full loans in my first 4 months than I ever imagined I would (41 of about 2400 loans). That's about 4X my total lates (portfolio too young for any defaults yet; but soon).
« Last Edit: October 08, 2013, 08:42:36 PM by Rob L »

rawraw

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Re: Constant Prepayment Rate (CPR)
« Reply #13 on: October 09, 2013, 06:54:46 AM »
The "pre-payment" problem was THE problem preventing the securitization of home mortgages way back when. Salomon Brothers (Ranieri) came up with a solution (tranches), that paved the way to the multi-trillion dollar industry it is today. It's been a long time since I read Liar's Poker by Michael Lewis, but I remember it's a very good read and tells this story well.

For P2P not that of a big deal, but I have had far more paid in full loans in my first 4 months than I ever imagined I would (41 of about 2400 loans). That's about 4X my total lates (portfolio too young for any defaults yet; but soon).
I wouldn't say it was preventing securitization -- but the investments aren't as attractive as just straight pass-throughs.  I <3 CMOs