Pricing delinquent mortgages

Camilo Sarmiento

Applied Economics Letters, 2009, vol. 16, issue 13, 1313-1317

Abstract: One of the most challenging tasks facing financial institutions is how much to mark down mortgage loans with delinquency events in the book of business. Since delinquent loans are not actively traded in the market, a modelling approach is needed for re-pricing these loans. Here, we show a two-step methodology for re-pricing delinquent loans. The first step uses the history of mortgage delinquencies to mark down the Fair Isaac Corporation Credit (FICO) score. The second step applies the mark down FICO score to a risk price model.

Date: 2009
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DOI: 10.1080/17446540802534306

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