Black Knight Rolls Out Tool For Measuring Prepayment Risk on Multifamily Loans


Black Knight has released a new analytics tool that measures prepayment and credit risk of multifamily mortgage assets.

The new AFT Multifamily Model Is designed to assist fixed-income capital market analysts, investors and insurers, the company says in a release. It is based on the company’s popular AFT Single-Family Model.

The new tool forecasts mortgage behavior at the loan- or pool-level for apartment buildings, senior housing, low-income housing and other multifamily properties.

With multifamily deals, lenders want to verify that rental income potential – net of expenses – meets or exceeds the mortgage obligation. The new AFT Multifamily Model captures the most critical performance drivers, sensitivities and key macroeconomic factors to provide insight into rental income potential and a unified method of forecasting mortgage behavior for the wide range of multifamily properties.

“Given the significant size of investments involved, it’s essential that those tasked with bond pricing, valuation and hedging have access to a model that can best capture the unique and dynamic aspects of the multifamily market,” says Ben Graboske, president of Black Knight Data & Analytics. “Our new AFT Multifamily Model provides deeper visibility into loan behavior to support better decision-making and reduced risk.”

What follows are some of the new tool’s capabilities:

  • Prepayment Provision. Converts prepayment penalties (such as yield maintenance and scaling down) into adjustments to the refinance incentive calculation to comprehensively measure the prepay penalty impact on prepayments.
  • Updated Debt Service Coverage Ratio (DSCR). Measures a borrower’s ability to successfully generate enough cash flow to cover mortgage payments based on key macroeconomic and loan characteristics.
  • Multifamily Price Index (MFPI). Developed based on the multifamily data from Black Knight’s property record database and the Black Knight Home Price Index (HPI), this critical macroeconomic driver enables more accurate mark-to-market valuation by incorporating data down to the ZIP-code level.
  • Current Loan-to-Value Ratio (CLTV). Driven by the Black Knight Multifamily Price Index, the CLTV estimate provides greater accuracy to better evaluate equity and valuation, crucial drivers in forecasting both rate/term and cash-out refinance and turnover, as well as default and loss projection.
  • Other Factors. Incorporates the impact of unemployment rates, current occupancy rate and projection, payment shock for hybrid, adjustable rates and balloon terms.

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