A static pool is a pool of loans acquired or originated during a specific time period and can be vintage or current. These pools are tracked by the lending institutions with regard to defaults, refinances and repayments over the term. Pools of loans that have already matured are called vintage static pools. The data acquired from both vintage and current static pools of loans is useful in predicting the experience of pools of new loans. Static pool analysis compares similar vintage and other current loan pools with current pools or, for funding purposes, expected performance of new loans to be made with the proceeds of new funding.
Identify similar pools of loans to be used for comparison. Similar pools would have similar credit risk, collateral type and age, contract term and loan-to-value ratios. If a pool of loans is being considered for purchase, consider any differences in loan underwriting policies of the original lender.
Research the economic environment when the loans were issued, if using a vintage static pool as a benchmark. If evaluating the performance of a loan pool to be purchased, or the potential performance of current loans, against a static pool benchmark many factors can influence performance so the accuracy of your analysis is determined by selecting for details that make the two pools similar in more ways than just asset quality and type.
Compare the static pool with the current or projected loan pool according to the constant prepayment rate (CPR), which measures how many loans are prepaid prior to maturity; default proportion, which measures the percentage of defaulted loans; and loss severity, which is the difference in the amount of money that would have been collected from all the loans had there been no prepayments or defaults.
Include cash outflows to further identify similarities in loan pools. Cash outflows include the total amount of each loan and the total of loans for the entire pool, origination fees to third parties, insurance premiums paid as part of the loan, servicing fees, expenses in connection with repossession, reconditioning and remarketing of repossessed assets and other costs of administering the loan program.
Include cash inflows associated with each pool. Cash inflows include interest and principal from regularly scheduled loan payments, prepayments of principal as a result of refinancing or trade-in if comparing auto loan pools, proceeds of repossession sales, insurance recoveries and any rebates or other special situation cash inflows.
