Levered Returns and Structural Changes

dv01 research typically focuses on the nuances of collateral performance and origination trends across a variety of consumer-facing asset classes. This report, however, centers on the interchange between Asset Yield and Liability Cost, and how this relationship ultimately translates to the Excess Interest that drives returns on the residual class of a security.

From this basic relationship, dv01 links changes in Excess Interest to required Enhancement levels of securitizations as market spreads change. This report also dives into how excess spread and Enhancement levels shift over time, offering upgrade potential to subordinated tranches alongside the results of the dv01 Non-QM Prepayment Model— the only publicly available prepayment model built specifically for the Non-QM market—to determine an effective duration for the collateral, which helps establish the total loss coverage available for a security.