Black Knight's Optimal Blue Mortgage Lock Data Used to Forecast Short-Term Prepayment Activity, Enhance Behavioral Models
Black Knight, Inc. (NYSE:BKI) has released a white paper detailing the use of mortgage pipeline rate lock data to enhance short-term prepayment modeling. The report indicates that this data serves as a primary indicator of future cash flow, essential for valuing mortgage-backed securities (MBS) and mortgage servicing rights (MSR). By leveraging the Optimal Blue Mortgage Lock Data, the white paper suggests improved predictive capabilities for prepayment models, advocating for its incorporation to supplement existing methodologies. This move positions Black Knight as a key player in mortgage analytics.
- Release of a white paper presenting innovative methods for predicting prepayment speeds.
- Utilization of Optimal Blue Mortgage Lock Data to strengthen predictive models for MBS and MSR.
- Demonstrable correlation found between prepayment prediction and lock activity, which enhances model accuracy.
- None.
JACKSONVILLE, Fla., Feb. 28, 2022 /PRNewswire/ -- Today, Black Knight, Inc. (NYSE:BKI) released a complimentary white paper exploring the use of mortgage pipeline rate lock data to inform daily prepayment modeling. As a primary indicator of a loan's future cash flow, prepayment prediction is a critical component of valuing both mortgage-backed securities (MBS) and mortgage servicing rights (MSR). Black Knight captures origination rate lock data as an output of its Optimal Blue Product, Pricing and Eligibility (PPE) engine – mortgage lending's most widely used product and pricing engine – which is then accessible through its Optimal Blue Mortgage Lock Data product.
"Interest rate movements are the leading signal of prepayment rates," said Scott Happ, president of Optimal Blue, a division of Black Knight. "As rates fall, borrowers are incentivized to refinance, which leads to a higher incidence of prepayment. In most cases, a rate lock will occur at roughly the same time as the application is submitted to the lender, reflecting a concrete decision on the part of a borrower to pursue funding. The timing of the lock makes it the most reliable, initially observed event in the mortgage process and a leading indicator of prepayments to the extent that a new mortgage, identified by the rate lock, will replace an existing loan. Pulling near real-time rate lock data into prepayment modeling pushes our industry closer to achieving a daily view of mortality rates."
The white paper looks at the viability of predicting short-term prepayment speeds by tracking Optimal Blue Mortgage Lock Data – a potentially game-changing supplement to traditional behavioral models leveraging historical prepayment data. To demonstrate the predictive quality of rate lock activity, monthly volumes in the Mortgage Lock Data were compared to Single Monthly Mortality (SMM) as calculated from Black Knight's McDash mortgage performance dataset. McDash data is servicer-contributed and provides primary-sourced data for roughly
"Certainly, those concerned with mortgage prepayments have long considered application activity as a precursor for prepayments," Happ continued. "But they have never been able to segment this early activity to predict prepayments on specific cohorts of MBS or MSR investments. Optimal Blue Mortgage Lock Data can be used as both a model input and a benchmark to compare existing prepayment assumptions. We urge prepayment analysts to test the value of incorporating rate lock data into their forecasting models. Our research suggests it will improve the predictive capability of prepayment models above and beyond standard inputs, particularly for modeling prepayment activity in the short term."
Among the core takeaways included in the white paper is the demonstrable correlation between prepayment prediction and in-stratification lock activity. This parallel suggests that including combinations of selected cohorts into a predictive prepayment model could prove beneficial for more accurate valuations of MBS and MSR.
The full white paper can be viewed here.
About Black Knight
Black Knight, Inc. (NYSE:BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets. Businesses leverage our robust, integrated solutions across the entire homeownership life cycle to help retain existing customers, gain new customers, mitigate risk and operate more effectively.
Our clients rely on our proven, comprehensive, scalable products and our unwavering commitment to delivering superior client support to achieve their strategic goals and better serving their customers. For more information on Black Knight, please visit www.blackknightinc.com/.
For more information:
Michelle Kersch
904.854.5043
michelle.kersch@bkfs.com
Mitch Cohen
704.890.8158
mitch.cohen@bkfs.com
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SOURCE Black Knight, Inc.
FAQ
What is the significance of Black Knight's white paper released on February 28, 2022?
How does the Optimal Blue Mortgage Lock Data improve prepayment forecasting for Black Knight (BKI)?
What correlation did Black Knight identify regarding mortgage prepayment activity?
