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Author: Shuyao Yang
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 35
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Book Description
The unexpected increase in loan default on the mortgage market is widely considered to be one of the main cause behind the economic crisis. To provide some insight on loan delinquency and default, I analyze the mortgage performance data from Fannie Mae website and investigate how economic factors and individual loan and borrower information affect the events of default and prepaid. Various delinquency status including default and prepaid are treated as discrete states of a Markov chain. One-step transition probabilities are estimated via multinomial logistic models. We find that in general current loan-to-value ratio, credit score, unemployment rate, and interest rate significantly affect the transition probabilities to different delinquency states, which lead to further default or prepaid events.
Author: Shuyao Yang
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 35
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Book Description
The unexpected increase in loan default on the mortgage market is widely considered to be one of the main cause behind the economic crisis. To provide some insight on loan delinquency and default, I analyze the mortgage performance data from Fannie Mae website and investigate how economic factors and individual loan and borrower information affect the events of default and prepaid. Various delinquency status including default and prepaid are treated as discrete states of a Markov chain. One-step transition probabilities are estimated via multinomial logistic models. We find that in general current loan-to-value ratio, credit score, unemployment rate, and interest rate significantly affect the transition probabilities to different delinquency states, which lead to further default or prepaid events.
Author: Brent C. Smith
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This article represents an extension of the expansive credit risk and credit migration literature, prominent in option pricing risk analysis of corporate bond and securities investment, to an analysis of the drift of consumer credit scores over the first 3 years of a mortgage loan. A rich data set of residential mortgages is used in the development of models to predict credit score migration and then to illustrate the potential of credit score transition as a precursor of default and prepayment. The results are especially useful for servicing agents and investors in a fashion similar to credit ratings on commercial paper.
Author: Rebecca M. Richardson
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 0
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Book Description
A Markov Chain model can be used to model loan defaults because loans move through delinquency states as the borrower fails to make monthly payments. The transition matrix contains in each location a probability that a borrower in a given state one month moves to the possible delinquency states the next month. In order to use this model, it is necessary to know the transition probabilities, which are unknown quantities. A Bayesian hierarchical model is postulated because there may not be sufficient data for some rare transition probabilities. Using a hierarchical model, similarities between types or families of loans can be taken advantage of to improve estimation, especially for those probabilities with little associated data. The transition probabilities are estimated using MCMC and the Metropolis-Hastings algorithm.
Author: Ralph Guy DeFranco
Publisher:
ISBN:
Category : Default (Finance)
Languages : en
Pages : 254
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Book Description
Author: Don P. Walshe
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This paper models mortgage loan quality in Ireland when only aggregate arrears data are available. A first-order Markov model of credit migration is estimated using constrained regression and Bayesian techniques. The estimated transition probabilities for the Irish mortgage loan book are broadly consistent with findings in the literature, obtained using different methodologies and data. The Markov model is also estimated for UK data, and the probability of transitioning into arrears is found to be higher in Ireland. Once in arrears, however, transition dynamics are found to be remarkably similar in both countries. The probability of falling into arrears is found to have peaked in June but widespread forbearance is likely to be exceptionally costly in Ireland.
Author: Rebecca Lee Monson
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 114
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Book Description
A Markov Chain model can be used to model loan defaults because loans move through delinquency states as the borrower fails to make monthly payments. The transition matrix contains in each location a probability that a borrower in a given state one month moves to the possible delinquency states the next month. In order to use this model, it is necessary to know the transition probabilities, which are unknown quantities. A Bayesian hierarchical model is postulated because there may not be sufficient data for some rare transition probabilities. Using a hierarchical model, similarities between types or families of loans can be taken advantage of to improve estimation, especially for those probabilities with little associated data. The transition probabilities are estimated using MCMC and the Metropolis-Hastings algorithm.
Author: Lyn C. Thomas
Publisher: OUP Oxford
ISBN: 0191552496
Category : Business & Economics
Languages : en
Pages : 400
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Book Description
The use of credit scoring - the quantitative and statistical techniques to assess the credit risks involved in lending to consumers - has been one of the most successful if unsung applications of mathematics in business for the last fifty years. Now with lenders changing their objectives from minimising defaults to maximising profits, the saturation of the consumer credit market allowing borrowers to be more discriminating in their choice of which loans, mortgages and credit cards to use, and the Basel Accord banking regulations raising the profile of credit scoring within banks there are a number of challenges that require new models that use credit scores as inputs and extensions of the ideas in credit scoring. This book reviews the current methodology and measures used in credit scoring and then looks at the models that can be used to address these new challenges. The first chapter describes what a credit score is and how a scorecard is built which gives credit scores and models how the score is used in the lending decision. The second chapter describes the different ways the quality of a scorecard can be measured and points out how some of these measure the discrimination of the score, some the probability prediction of the score, and some the categorical predictions that are made using the score. The remaining three chapters address how to use risk and response scoring to model the new problems in consumer lending. Chapter three looks at models that assist in deciding how to vary the loan terms made to different potential borrowers depending on their individual characteristics. Risk based pricing is the most common approach being introduced. Chapter four describes how one can use Markov chains and survival analysis to model the dynamics of a borrower's repayment and ordering behaviour . These models allow one to make decisions that maximise the profitability of the borrower to the lender and can be considered as part of a customer relationship management strategy. The last chapter looks at how the new banking regulations in the Basel Accord apply to consumer lending. It develops models that show how they will change the operating decisions used in consumer lending and how their need for stress testing requires the development of new models to assess the credit risk of portfolios of consumer loans rather than a models of the credit risks of individual loans.
Author: Adam B. Ashcraft
Publisher: DIANE Publishing
ISBN: 1437925146
Category :
Languages : en
Pages : 76
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Book Description
Provides an overview of the subprime mortgage securitization process and the seven key informational frictions that arise. Discusses the ways that market participants work to minimize these frictions and speculate on how this process broke down. Continues with a complete picture of the subprime borrower and the subprime loan, discussing both predatory borrowing and predatory lending. Presents the key structural features of a typical subprime securitization, documents how rating agencies assign credit ratings to mortgage-backed securities, and outlines how these agencies monitor the performance of mortgage pools over time. The authors draw upon the example of a mortgage pool securitized by New Century Financial during 2006. Illustrations.
Author: David Lynch
Publisher: Cambridge University Press
ISBN: 1108756484
Category : Business & Economics
Languages : en
Pages : 489
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Book Description
Financial models are an inescapable feature of modern financial markets. Yet it was over reliance on these models and the failure to test them properly that is now widely recognized as one of the main causes of the financial crisis of 2007–2011. Since this crisis, there has been an increase in the amount of scrutiny and testing applied to such models, and validation has become an essential part of model risk management at financial institutions. The book covers all of the major risk areas that a financial institution is exposed to and uses models for, including market risk, interest rate risk, retail credit risk, wholesale credit risk, compliance risk, and investment management. The book discusses current practices and pitfalls that model risk users need to be aware of and identifies areas where validation can be advanced in the future. This provides the first unified framework for validating risk management models.
Author: Frank J. Fabozzi
Publisher: Oxford University Press
ISBN: 0191088781
Category : Business & Economics
Languages : en
Pages : 916
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Book Description
This edition of The Handbook of Mortgage-Backed Securities, the first revision following the subprime mortgage crisis, is designed to provide not only the fundamentals of these securities and the investment characteristics that make them attractive to a broad range of investors, but also extensive coverage on the state-of-the-art strategies for capitalizing on the opportunities in this market. The book is intended for both the individual investor and the professional manager. The volume includes contributions from a wide range of experts most of whom have been actively involved in the evolution of the mortgage-backed securities market.
