Credit Migration in Residential Mortgages: Fico Drift as a Prelude to Loan Performance

Posted: 9 Jun 2010 Last revised: 2 Aug 2017

See all articles by Brent C. Smith

Brent C. Smith

Virginia Commonwealth University

Date Written: March 1, 2010

Abstract

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.

Suggested Citation

Smith, Brent C., Credit Migration in Residential Mortgages: Fico Drift as a Prelude to Loan Performance (March 1, 2010). Available at SSRN: https://ssrn.com/abstract=1561988 or http://dx.doi.org/10.2139/ssrn.1561988

Brent C. Smith (Contact Author)

Virginia Commonwealth University ( email )

1015 Floyd Avenue
Richmond, VA 23284
United States

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