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MSCI Agency Prepayment Model Performance Review 2019

As required by the MSCI Securitized Product Model policy, we review and approve MSCI agency fixed rate prepayment model performance in 2019. The review includes mainly three areas -Prepayment forecasts: The model gave accurate prepayment forecasts for major vintage coupon cohorts. The weighted average 6-month average forecasts errors are below 0.2 smm, with most of the major vintage coupon cohorts having an error below 0.3 smm. The model was able to differentiate prepayment behavior across collateral attributes and macro-economic environment, mainly the significant rates rally in the summer. The average ranked based error measure is 0.2 smm. -MBS TBA durations: The model was able to track empirical durations, hence the market price dynamics, across the significant rates rally. Bucketed based on TBA moneyness, the model durations were able to track empirical durations within 0.25 year. -VaR measure: The model OAS time series were found to be stationary, hence suitable for VaR measures. The KS statistic for the p-value of actual OAS change vs. forecasted distribution based on OAS history is less than 0.04. 2019 saw significant rates rallies and mortgage basis volatilities, as well as major uncertainties in Fed’s monetary policy. The model performance was also reviewed in the context of Press reports of wide spread model under-forecasts of the large prepayment during the summer refinance wave.1 As suggested by best practice, the appendix presents some model comparisons with three other models from peer analytics providers.