33  Moody's WSA Integration

Moody's Analytics has a model - WSA Libraries, which generate structured Security Cash Flows. This functionality is required to support the modeling of structured products (ABS/MBS CMO's, and CDO's). In OFSAA BSP, this integration is necessary for Modeling Structured Product Cash Flows of a given tranche of security. These Cash Flows cannot be modeled in the OFSAA CFE because of the nature of the rules in the waterfall of Cash Flows.

For example, a structured security is backed by a pool of loans, and these loans pay principle and interest but the certainty of Cash Flows is not known because of prepayment and loss activity within a specified loan pool. These monthly cash flows are Run through the waterfall rule within the securitization and only then are the individual tranche cash flows derived. The moody's cash flow model will output these specific tranche cash flows under given input assumptions, and OFSAA will uptake these cash flows into the BSP Processing. The input assumption information is passed to the Moody's Model, so their model will produce cash flows for a given tranche of security (such as interest and principal), and the model results will be imported into our deterministic cash flow results (Detail cash flows, Result Detail, Result Master Cons Detail and Cons Master).

Before using Moody's Cash Flow libraries in OFSAA BSP, Users must procure a license to the WSA libraries from Moody's Analytics.

Deployment of Moody Libraries on OFSAAI

The following are the prerequisites to deploy Moody Libraries on OFSAAI:

·        BSP 8.0

·        A license for the WSA Libraries is required from Moody's

Steps to Deploy Moody Libraries on OFSAAI

·        Preparation

1.     Log in to the UNIX Profile where the OFSAAI Database tier is installed.

2.     Create a folder called “Moody”; create 2 sub-folders under “moody”: ”data”, “lib64”.

3.     Edit the .profile script and set the following environment variables:

§       MOODYS_DATA_PATH: Set it to the absolute path of the “data” sub-folder created above

§       LD_LIBRARY_PATH: Update this environment variable to include the absolute path of the “lib64” sub-folder created above

§       ADCO_DATA_PATH: Set it to the absolute path where ADCo historical-rate files are present.

NOTE:   

This is only required if you are using Moody's Libraries along with the ADCo prepayment model. For more information on the Adco LDM Prepayment Model, see the chapter Andrew Davidson and Company (ADCo) Prepayment Method.

4.     Stop all OFSAAI Services.

5.     Log out of the UNIX Session and log back into UNIX. Verify that the 2 environment variables created above are set properly.

6.     Start all OFSAAI Services.

a.     Deployment:

i.       Download the Moody libraries and place the files into the “moody/lib64” sub-folder.

ii.     Place the deal files in the “Moody's Data” folder.

b.     Enable Moody functionality in BSP

i.       Login to OFSAAI as the SYSADMN.

ii.     Under the OFSAAI Home Page, go to Administration -> Security Management.

iii.   Expand System Administrator and click “Function – Role Map”.

iv.   Associate the SMS-Function “'Moody Integration for BSP'” with the required roles to the required user name.

Moody's Integration – Considerations

WSA Engine and Processing of the Records

·        Moody's WSA Engine requires CUSIP or Deal-Id/Tranche (Bond) Id for processing the instruments. Depending on the Forecast Scenario and the behavior assumptions, the WSA engine will process the records and output the respective cash flows for various scenarios.

·        Moody's provides the cash flows only at the tranche balance, Users should populate the balance of their position in the appropriate column, and the cash flows from Moody's would be scaled to the balance provided. This happens within the OFSAA BSP engine.

·        If the user has Moody's installed, only securitized products (supported by Moody's) should be populated in the FSI_D_ASSET_BACK_SEC (or the table classification code for securitized products). Other records if populated in this table would not be processing. For example: If the user populates loans and securitized products in the FSI_D_ASSET_BACK_SEC table, the loan records would not be processed in the table.

·        OFSAA BSP also writes back instrument attributes such as agency_type, Asset_type, Original balance of the tranche, current balance of the tranche, coupon, stated maturity, periodicity, and so on for an upstream system to use, if needed.

WSA Engine and OFSAA Rate Management

Interest Rate Curves required for Moody's should be set up through the Curve Identifier drop-down list in the Rate Management IRC UI. Moody's requires the following curves to be defined:

·        LIBOR (Zero-Coupon LIBOR/Swap)

·        TREASURY CURVE (Zero-Coupon Treasury)

·        COFI (Cost of Funds Index)

·        PRIME (Prime Lending Rate)

It's the user's responsibility to set up the proper curves while using Moody's Libraries. Users can define only one Treasury Curve / one LIBOR Curve / one COFI Curve and one Prime Curve per currency.

NOTE:   

A majority of the deals would be based on LIBOR/Treasury Curves.

WSA Engine and OFSAA Product Characteristic Definition

A New tab “Model Integration” is introduced for Moody's WSA Integration. This tab is enabled only for the account types “Structured Products - Assets” “Structured Products - Liabilities”.

Model Selection, Tuning, and tuning parameters for the selected model can be passed through the Model Integration in Product Characteristic UI.

Users should logically branch the deals (RMBS, CMBS, SLABS, Credit Cards) in their hierarchy for modeling the behavior in the following two ways. The details are as follows:

·        Passing the assumptions from a table: The user can choose to pass the following assumptions (listed in the table below) through the table “FSI_D_BEHAVIOR_ASSUMPTIONS”. These would be read from the table and applied to the deal with the matching “INSTRUMENT_NUM” in the Instrument Table. In the model selection UI, the user has to select “Source system provided” against the particular node for modeling with the user provided assumptions.

Assumption Types/Subtype Details:

§        When a user is passing assumptions, for example, the Prepayment Vector, the subtype values can be in; – PSA, SMM, CPR, HEP, and ABS. Users have to make sure they are passing the correct and acceptable subtype with respect to Moody's. Only one subtype can be applied for prepayment and default per each CUSIP.  

§        When passing the delinquency assumptions, the dq30val, dq60Val, and dq90Val mentioned for are not subtypes; rather they are various levels of delinquencies possible. Typically a deal would have all three vectors available. 

·        ADCo prepayment and default modeling: The user can also choose to model through the ADCo model by selecting “ADCo” in the model selection drop-down list. ADCo can only be used against RMBS deals, as ADCo can only model Mortgage-Backed Securities.

Tuning Parameters:

Tuning is available to allow the user to customize the assumptions being provided to Moody's WSA Engine.

§        For Source System Provided:

§        For ADCO:

Additionally, the Parameters available are:

Setting up a Moody's Process

The steps to set up a Moody process, follow these steps:

1.     Mapping of the Moody's function to the BSP User

2.     Set up the curves needed for Moody's WSA libraries, with the respective curve identifier.

3.     Load the STG_INVESTMENTS and STG_INSTRUMENT_CONTRACT_MASTER tables.

4.     Run the T2T batch to populate the FSI_D_ASSET_BACK_SEC table.

5.     Define the Model Integration rule in the Product Characteristic UI for the leaf nodes in the Member Hierarchy.

6.     Define the Forecast Rate rules and the discount methods - only required for valuation. (For more details on ADCo 360 Bucket forecasting, see the chapter Forecast Rate Scenarios).

7.     Setup the Static/dynamic deterministic Process including the rules defined above (Prod Char, Forecast Rates, and Discount methods). (Note: New Business is not supported for Securitized products).

8.     Select the structured product output flag (optional) to update the Instrument Records.

9.     Execute the Process.

Limitations

·        New business not supported for Dynamic Deterministic Processing.

·        WSA libraries are only available on Linux Operating Systems (5 &6).