For more information on our financial services offerings, contact us at:
Analytic Focus LLC
1116 20th Street South #406
Birmingham, AL 35205
Phone: (205) 672-9253
Fax: (205) 672-9255
E-mail: info@analyticfocus.com

Analytic Focus LLC
5218 Sagail Place
San Antonio, TX 78249
Phone: (210) 465-7838
E-mail: info@analyticfocus.com
Analytic Focus LLC
121 N Washington Street
Suite 300B
Alexandria, VA 22314
Phone: (703) 549-2682
Fax: (703) 483-3977
E-mail: info@analyticfocus.com

Valuation and Financial Economics

Our financial economists provide financial institutions, regulatory agencies, and corporate counsel with expert financial and economic advice. Our research is customized to the needs of the individual client, including the development of audience-specific reports. Our specialists are experts in a broad range of financial matters, including the valuation of complex financial instruments such as options and swaps, determining the cost of capital, the proper use of appropriate discount rates, analysis of financial markets, and the incorporation of real options in the capital budgeting process.

Problem:

A regulator wanted a review of its models to evaluate the valuation routines used in its Net Portfolio Value (NPV) Model for the following instruments:

  • fixed-rate single-family, first mortgage loans and securities,
  • adjustable-rate single-family,
  • first mortgage loans and securities,
  • mortgage loan servicing rights,
  • mortgage servicing done by others,
  • mortgage-related escrow deposits, and
  • mortgage-related commitments (the “subject instruments”.)

Our solution:

We conducted a zero-based review of the current valuation methodology for the subject instruments. The deliverable product was a comprehensive report that contained an overall assessment of the data collection and pricing process. Among the issues that the report addressed were:

  • valuation accuracy for the subject instruments due to the current level of aggregation;
  • the need for other data relating to fixed-rate and adjustable-rate single-family mortgage loans, securities, and other mortgage-related instruments;
  • whether additional financial instruments should be reported and valued by the NPV Model, such as interest-only, jumbo and sub prime mortgages;
  • the optimal levels of data aggregation;
  • interest rate indices that should be added to the pricing routines for adjustable-rate mortgage loans and securities;
the appropriateness of the NPV Model’s current two-factor interest rate process, single-family mortgage prepayment models and simulation routines.

Benefit to Our Client:

Recommendations regarding a new data collection process for the subject instruments did not to increase the reporting burden on the thrift industry. A tradeoff model was developed to permit acceptance of a certain degree of valuation difference in exchange for a simplified and non-burdensome data collection process.