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Reporting Early Payment Default (EPD)

Once the necessary mortgage loan servicing data is available, the investor runs an EPD report that generates EPD statistics by seller. EPD reports vary depending on the reporting needs of the investor. The EPD report detailed in this article is intended to fulfill an investor requirement to report a month end seller active mortgage loan servicing EPD report.

Creating the Report...
Seller Early Payment Default (EPD) Percentage
The Seller's Early Payment Default (EPD) percentage is the seller's total early payment default principal dollar loan amount divided by the seller's active mortgage loan servicing principal dollar loan amount for the previous year.
Step #1
The seller's active servicing for the early payoff default reporting period, all active loans for the seller that were purchased by the investor in the previous year, is calculated.

The seller's total active servicing for the early default report period is equal to the sum of the principal amount of all loans in the investor's servicing portfolio, for the seller, where the loan's status is Active, Repurchase, Bankruptcy, Foreclosure, Prepayment or Early Payoff for the period calculated. Typically, the only loans excluded by an investor when calculating the active servicing for a seller are those that have been sold servicing released by the investor or loans that are still on the investor's servicing system but considered paid in full and not in a prepayment or early payoff status.

Step #2
The seller's active servicing by early payment default, loans in a 90+ days delinquent or default status that were purchased by the investor in the previous year, is calculated.

The seller's early payment default amount is equal to the sum of the principal amount of all loan's in the investor's servicing portfolio, for the seller, where the loan's purchase date is less than or equal to 360 days from the report date AND the loan's next payment due date is greater than 90 days plus the servicer's grace period past due.

For example, if the early payment default report date is 2/1/07, the early payment default report would include all loans purchased from the seller between 2/1/06 and 1/31/07. The early payment default report would then filter the loans by the next payment due date where the next payment due date is 90 days less than the current date (2/1/07) plus the servicer's grace period, typically 10 or 15 days.

Step #3
The seller's early payment default amount is compared to the seller's active servicing amount to report an early payment default percentage.

In this step, the investor takes the seller's active servicing for the early payoff default reporting period from Step #1 and compares this value to the early payment default amount calculated in Step #2. The result is used to report the seller's percentage of Early Payment Defaults (EPD).

NOTES:
Many EPD reporting scenarios exist. A few things to consider when performing analysis to report EPDs are:
  • Some investors report EPDs as a percentage of total production for the previous year. EPD reports that use total production tend to be more favorable to the seller. Typically, in this type of report EPD amounts are compared to a total production amount that includes prepayments and loans sold servicing released. This type of report is not recommended if determining seller risk is the reports main purpose.
  • It is recommended that once a loan is identified as an EPD that the relevant data be saved to a separate EPD reporting database or table. Saving EPD data to a separate reporting table insures data against loan status changes and year-end servicing data updates or deletions and serves as a basis for generating trend reports.
A Seller Early Payment Default (EPD) report similar to the Sample Early Payment Default (EPD) Report in the Sample Early Payment Default (EPD) Report section of this article can be generated by the investor for distribution to the seller.


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