MBS Cumulative Defaults Calculations Under Different HPA Scenarios
December 19, 2024
What is the best way to quantify credit risk for a specific collateral type under different HPA scenarios using only data, without relying on a "black box" analyst-specific model or spending hours programming?
The steps below demonstrate how this can be efficiently achieved in the MBS Data Insights Mortgage Analyzer within a few minutes:
- Select Credit Characteristics of the Collateral
For example, Figures 1 and 2 below show collateral selected based on both Origination LTV and FICO buckets to highlight credit layering. - Calculate Cumulative Defaults
Use the Cumulative() operator to calculate defaults for vintages reflecting different HPA scenarios. For instance:- Figure 1 uses the 2004 vintage, representing a "negative" HPA scenario during the Great Financial Crisis (GFC).
- Figure 2 uses the 2011 vintage, representing a "positive" post-GFC HPA scenario.
Cumulative CDRs in the GFC scenario (Figure 1) are overly conservative for almost any future HPA projection. Conversely, post-GFC scenarios (Figure 2) may be overly aggressive, given >150% HPA up to now and strict underlying requirements. As a result, our expected Cumulative CDRs lie somewhere between these two scenarios.
The templates used in Figures 1 and 2 can be found in the Standard Templates section:
See more details HERE.
Run the reports HERE.
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