AFT Multifamily Model will help investors, fund managers, and insurers measure prepayment and credit risk
A new model to help investors, fund managers, and insurers measure prepayment and credit risk in mortgage assets has been launched by Black Knight.
The AFT Multifamily Model uses fundamental elements of the firm’s Single-Family version of the model to forecast mortgage behavior at the loan- or pool-level for apartment buildings, senior housing, low-income housing and other multifamily properties.
By using the model, users can determine rental income potential based on critical performance drivers.
"Given the significant size of investments involved, it's essential that those tasked with bond pricing, valuation and hedging have access to a model that can best capture the unique and dynamic aspects of the multifamily market," said Ben Graboske, president of Black Knight Data & Analytics. "Our new AFT Multifamily Model provides deeper visibility into loan behavior to support better decision-making and reduced risk."
Among the models capabilities:
- Prepayment Provision. Converts prepayment penalties (such as yield maintenance and scaling down) into adjustments to the refinance incentive calculation to comprehensively measure the prepay penalty impact on prepayments.
- Updated Debt Service Coverage Ratio (DSCR). Measures a borrower's ability to successfully generate enough cash flow to cover mortgage payments based on key macroeconomic and loan characteristics.
- Multifamily Price Index (MFPI). Developed based on the multifamily data from Black Knight's property record database and the Black Knight Home Price Index (HPI), this critical macroeconomic driver enables more accurate mark-to-market valuation by incorporating data down to the ZIP-code level.
- Current Loan-to-Value Ratio (CLTV). Driven by the Black Knight Multifamily Price Index, the CLTV estimate provides greater accuracy to better evaluate equity and valuation, crucial drivers in forecasting both rate/term and cash-out refinance and turnover, as well as default and loss projection.
- Other Factors. Incorporates the impact of unemployment rates, current occupancy rate and projection, payment shock for hybrid, adjustable rates and balloon terms.
The AFT Multifamily Model is available via Black Knight's Rapid Analytics Platform (RAP), API or in combination with third-party platforms for bond pricing, valuation, cash flow projection, hedging and asset-liability management.
