Two mortgage information companies will combine their expertise to offer mortgage prepayment and default predictions designed to help investors reduce portfolio losses.
Mortgage Research Group, Jersey City, and two divisions of TRW Corp. - TRW Information Services and TRW Redi Property Data, both based in California - will develop data base services and analytical models using real estate, consumer credit, and demographic data.
The stability of mortgage investments is difficult to predict because borrowers may decide to prepay a loan to buy a new house or to refinance.
Mortgage rates and the homeowner's equity and credit are the three most important factors that determine prepayments, said Gordon Monsen, president of Mortgage Research Group. "For the first time, we will be able to develop prepayment and default models that incorporate all three factors explicitly and empirically," he said.
Mr. Monsen said the information will be especially timely because many loans written during the refinancing boom of 1992 and 1993 are reaching the three-year mark. Delinquency is most likely to occur after the second or third year of the loan, experts say.
In the fourth quarter of 1994, some 4.15% of all home loans were delinquent. That was preceded by a 21-year low for delinquencies in the third quarter last year because of falling rates. But now both rates and delinquencies have now begun to increase.
Mortgage Research Group will offer the models in the secondary mortgage and investment banking markets and TRW will offer them in the primary markets.
"Our strategic alliance with MRG is an ideal opportunity to leverage TRW's real estate and credit information for the benefit of investors," said Don DePamphilis, TRW vice president for planning and development. "TRW has a long-standing relationship with MRG's principals, who have a proven track record developing models for the mortgage investment community."
TRW Redi Property Data, Riverside, maintains a national property database, offering on-line tax and title information, real property data and real estate related information. TRW Information Services, Orange, operates a consumer credit reporting service. Mortgage Research Group was formed by two former researchers in mortgage-backed securities at Bear, Stearns & Co.
