Prepayments360º
Prepayments360º
DCG’s Strategic Loan Prepayment Analytics Solution
Leveraging Data for Assumption and Strategic Risk Management
All too often, we find risk managers and decision makers struggling to obtain credible support for the key assumptions and
drivers of their risk models. As use of these models broadens to cover enterprise risk management and financial
performance, so does the need to address this deficiency.
Predicting customer loan prepayment/refinancing behavior is as much an art as it is a science – and the risk of being
wrong now carries greater consequences than ever before as net interest margins are under siege and there is no
resolution in sight.
The impact that prepayment assumptions have on interest rate risk modeling results, liquidity forecasting and stresstesting, capital planning and, ultimately, the decision-making process as a whole requires institutions to have in place a
strong assumption development and support system that allows management to fully understand how refinancing
behaviors can change and impact risk assessment and management. The information obtained from these studies can be
a critical component to not only your ALCO process, but your entire enterprise risk management and stress-testing
framework as well.
“The Loan Prepayment Analytics tool is something every senior lending officer should have. It is one of
my primary tools to assist me in my daily lending activities and Net Interest Margin management, and is
well beyond the scope of just a regulatory exercise. I share the information with my team, ALCO and the
Board to better analyze and interpret the prepayment characteristics of our entire loan portfolio.”
- Senior Lender & DCG Client
Looking beyond the competitive and strategic business benefits, examiners have been weighing in on assumption
development and expect the key assumptions used for interest rate risk, liquidity, capital planning and stress testing to be
empirically supported and validated through ongoing comparisons of actual versus forecasted activities.
The questions that continue to face financial institutions of all sizes are how to gather the necessary data and prepare
analyses that sufficiently capture the information needed to develop and support these key risk modeling assumptions.
The process typically involves a notable investment of time, resources and level of expertise that many institutions just
simply do not have at their disposal.
How DCG can help
DCG has developed a loan prepayment analytics solution that transcends the simple creation of inputs for an ALM or
liquidity model – Prepayments360°. Our team of modeling and technology experts has developed a web-delivered
solution that puts you in the driver’s seat of a state-of-the-art loan portfolio analyzer that, in addition to delivering credible
loan prepayment assumption support (development and validation), provides in-depth loan analytics that will inform and
empower financial risk managers, lenders and strategic decision makers in the context of customer retention, budgeting
and lending initiatives, as well as deeper portfolio segmentation.
Prepayments360° harnesses your historical loan data to provide substantive insight into customer refinancing behavior
and the nature of the refinancing activity (paydowns, curtailments and even loan modifications). In addition, insight into
new lending activity (new volume, pricing, term structure and repricing characteristics) can be analyzed – a full 360°
perspective of your loan portfolio! DCG’s Prepayments360° can quickly become a centerpiece of your entire loan
assumption development and confirmation process.
© 2014 Darling Consulting Group • 260 Merrimac Street • Newburyport, MA 01950 • Tel: 978.463.0400 • DarlingConsulting.com
Prepayments360º
Key Highlights:
Historical Trend Analysis
Historical prepayment activity can be tracked, analyzed and summarized from a variety of viewpoints.
Below is an example of prepayment trends at a portfolio level compared to market rates, along with a breakdown between
fixed, floating and adjustable rate loans. Understanding historical behavior of various segments of the loan portfolio is
helpful in supporting budget or specific lending initiative activities.
© 2014 Darling Consulting Group • 260 Merrimac Street • Newburyport, MA 01950 • Tel: 978.463.0400 • DarlingConsulting.com
Prepayments360º
Portfolio Segmentation Analysis
Historical loan activity can be evaluated by a number of dimensions including product, loan age, term structure and
coupon bands. In addition, more selective filters can be applied to segment data based on loan office, branch, internal
credit rating, loan size (e.g. jumbo/non-jumbo) or a client-specified custom tag. Institutions are finding this level of analysis
beneficial beyond assumption development and validation – some have even broadened access to Prepayments360° to
lending officers who are actively identifying and preemptively soliciting refinance opportunities.
Loan-Level Drilldown Capabilities
Prepayments360° includes full drilldown capabilities – all the way down to individual loan activities. Access to this level of
detail can provide the user with the ability to research or trace results to individual loan(s).
© 2014 Darling Consulting Group • 260 Merrimac Street • Newburyport, MA 01950 • Tel: 978.463.0400 • DarlingConsulting.com
Prepayments360º
Flexible Interactive Design and Business Activity Analysis
Prepayments360° has the added benefit of providing instantaneous drill-through and drill-across views of all loan activities
including new business. The intuitive interactive user interface allows for virtually limitless creation of informative tables
and graphs that can be saved and subsequently accessed instantly by all users. Analysis can even be exported into
report- or presentation-ready formats, including Excel and PDF files.
© 2014 Darling Consulting Group • 260 Merrimac Street • Newburyport, MA 01950 • Tel: 978.463.0400 • DarlingConsulting.com
Prepayments360º
Benefits of DCG’s Prepayments360º
Liquidity Management
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Improved baseline cashflow forecasting
Well-informed operational liquidity planning
Development/support of stress-testing parameters
Back testing/attribution analysis input
IRR Management
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Accurate modeling of loan optionality
Well supported loan volume/pricing assumptions
Refined discounting methodologies
Assumption sensitivity testing input
Development/support of stress testing parameters
Back testing/attribution analysis input
Stress Testing
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Event and scenario assumption development/support
Back testing/attribution analysis
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Strategy/Budget Development
 Well-supported loan volume/pricing assumptions
 More informed retail lending game plan
 Wholesale investment and funding game plan
refinement
Profitability
 Loan pricing model refinement
 Funds transfer pricing
Loan Retention, Sales & Acquisitions
 Identification of loans at risk of refinancing
 Loan retention or selective sales analysis
For More Information:
To receive more information on Prepayments360°, along with the data requirements, please contact Darling
Consulting Group at 978.463.0400 or [email protected] or visit our website at
DarlingConsulting.com.
© 2014 Darling Consulting Group • 260 Merrimac Street • Newburyport, MA 01950 • Tel: 978.463.0400 • DarlingConsulting.com