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Decision system construction, validation and
regulatory review. |
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Management Consulting Services |
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Mortgage Decision Technologies, Inc. |
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Behavioral credit models
are typically used in the servicing collections unit to perform
“triage”. The score identifies the
loans with the highest probability of becoming OREO and resulting in an account charge-off to the institution. High risk loans may go to the top of the
calling queue, be transferred to the most effective collectors, or be offered
special programs to mitigate loss. The
tone of the collector’s script changes materially with the score. Having a reliable estimate
of risk can determine if an account
is eligible for “champion v. challenger” collection strategy assignment. . |
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Behavioral mortgage models are often segmented on the current
delinquency state of the mortgage and include information such as the
estimated LTV, the bureau credit score, loan purpose, loan coupon, property
characteristics, and
payment history of the mortgage. Behavioral models (both for credit and prepayment risk) are useful as input to
Monte Carlo simulations in economic capital requirement models. A sophisticated capital allocation process
is required for “Advance Practice” designation by regulators under Basel
II. Institutions designated Advanced Practice may determine capital by product and at the loan level. This has the potential to substantially
reduce capital required to hold prime
mortgages on the balance sheet of a financial institution and to make
“portfolio lending “ a very lucrative business. Institutions who cannot adequately
demonstrate the capabilities required
for Advance Practice designation will be required to hold more capital for
the same accounts as their analytically superior competitors. |