The Pipeline

In our final Pipeline issue of 2024, we present three articles covering farm loans, a new dynamic current coupon yield (CCY) model and the credit risk of whole loans.

In our first article, Sanjeeban introduces farm and ranch loans along with USDA loans, which AD&Co was able to analyze this year. He discusses how LDM was tuned to allow these loans to be analyzed for the purposes of asset-liability management, cash flow forecasting and valuation/risk analysis.

The Federal Agricultural Mortgage Corporation (Farmer Mac) provides rural lenders with a variety of loan products that enable them to offer products like long-term, fixed-rate loans that are typically not available to agricultural and rural customers. Lenders, who also have access to Farmer Mac’s funding sources that have competitive rates, usually continue to provide servicing for these loans.

Following up on our September 2023 Pipeline article, “Retrospective Current Coupon MBS Measure and Models,” Andrew Davidson & Co., Inc. (AD&Co) has developed a new current coupon yield (CCY) model consistent with a key rate duration output of our option-adjusted spread (OAS) system. The new model utilizes the same two points of the yield curve—the two-year rate and the ten-year rate—as the previous model. However, the regression’s weights become functions of the difference between these same two rates, thereby making the model nonlinear overall.

GSE origination share since 2023 is the lowest it has been since 2006. As described by Mickey Storms and Matteo Caracciolo-King in the last issue of The Pipeline, insurance company whole loan purchases have surged as interest rate increases have made seasoned discount loans more attractive investments for insurance companies, who need long duration assets with less optionality.