Quarterly Update of the SPV Service - Second Quarter 2006

In this release of SPV we have introduced certain constraints on some of the parameters used in the prepayment function. First we have put an upper restriction on BondHigh of 103 and a lower restriction on BondLow af 97. The reason for this is that for quite a while we have observed that the spread between the two parameters have been too large to be intuitively explained. Moreover we have also limited the standard deviation, stdPoolFactor, which are used in the burnout function, so that this value now has a maximum of 0.2. In that way we hope to resolve some of the problems we have experienced lately with the form of the burnout function especially for the loan group consisting of the largest loans. The main problem has been that the burnout function for this loan group have not been 1 even for high poolfactor values. Up until this release the solution has been to fix the PoolFactor and stdPoolFactor parameters for loan group 5 but now this temporarely solution has been replaced by putting the above mentioned constraint on stdPoolFactor.

Further we have introduced a section where we examine the development in the most common loan types. We look at the distribution of the different loan types at the start and end of the considered period and moreover we look at the distribution of new issues.

The theme this release is a revision of an earlier theme (April 2003) concerning the use of group level poolfactors, instead of the series level poolfactor which are currently used in all the standard models of SPV. We present a method to generate usable group poolfactors and give examples of how these group poolfactors can differ significantly from the series level poolfactors. Moreover we estimate a counterpart to the DMBS model and look at the valuation effects.