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Credit scoring and loan default

Geetesh Bhardwaj () and Rajdeep Sengupta

No 2011-040, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper introduces a measure of credit score performance that abstracts from the influence of ?situational factors.? Using this measure, we study the role and effectiveness of credit scoring that underlied subprime securities during the mortgage boom of 2000-2006. Parametric and nonparametric measures of credit score performance reveal different trends, especially on originations with low credit scores. The paper demonstrates an increasing trend of reliance on credit scoring not only as a measure of credit risk but also as a means to offset other riskier attributes of the origination. This reliance led to deterioration in loan performance even though average credit quality?as measured in terms of credit scores? actually improved over the years.

Keywords: Credit scoring systems; Mortgage loans (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-ure
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Working Paper: Credit scoring and loan default (2015) Downloads
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