-- By Kelly Kent

Source: Experian-Oliver Wyman Market Intelligence Reports

In the most recent release of the Experian-Oliver Wyman Market Intelligence Reports, each product report contains a series of vintage data reports that shed light on the delinquency, charge-off, and prepayment trends discussed earlier in this series.

These examples of vintage pool curves are taken from the Q2 2009 release and pertain to the mortgage product.

Vintage performance - delinquency
The performance metrics of each vintage are the essence of the benchmarking process. Having properly weighed and balanced each vintage pool, a comparison can be made to the performances of each pool. In the chart shown here, “30+ delinquency rates as % of
trades,” each vintage pool is tracked based on the months on book since its origination. For instance, the longest trend line belongs to the oldest vintage, Q2 2002, and reflects the 30+ delinquency rates over the past 84 months. Conversely, the newest vintage, Q2 2008, is the shortest trend line and reflects only the performance for the past 12 months for those trades. In this chart, it can be easily observed that the delinquency levels for the vintages from 2005, 2006, and 2007 deviate significantly from the older vintages and have spiked for the past 12 to 18 months while older vintages have behaved more consistently.

Distribution of trades
As mentioned earlier, vintage pools are defined by the score at origination for each of the loans within the pool. This is significant in that the distribution of loans will impact the ability to correctly benchmark against each pool. For instance, the chart shown here displays the distributions in each vintage pool, by VantageScore band. 

Despite the clear advantages of using vintage analysis, a benchmarking exercise will require significant weighing and balancing to ensure that the risk profiles of the portfolios are comparable.

Vintage performance - prepayment
Less prominent to delinquency trends are the prepayment trends of each pool. From the moment of origination, each pool begins to change its composition as a result of prepayments/closures which need to be considered in any analysis in order to understand the changing composition of each pool. It is vital that a user understand the shifting risk profile of each vintage, over time. The risk profile, by VantageScore for instance, may skew away from the higher quality consumers over time as prepayment removes them from the pool, leaving only the lowest-scoring consumers in the pool.

These are just three examples of the data required in order to perform vintage analysis. For the sake of brevity, other aspects of these analyses, such as geographic footprint, have been excluded.  These would also add significant insight to the analysis results.