The Morning After: Making The Case for Persistent Loan Level Analyses

February 1, 2010

You've booked the trade/priced the policy/granted the rating/set the reserves. So, the analytical heavy lifting is done, right? Not quite. Most major non-agency mortgage market participants would agree that some degree of loan level analysis has become the norm. Traditionally, most (if not all) granular analyses were completed pre-trade during price/rating/reserve discovery. After the transaction closed, many market participants were content to employ risk and surveillance systems that primarily consisted of periodic, canned, batch report distribution. As HPI hummed along at an annual 8% to 10% per annum clip, no one paid much attention to these monthly distribution list mailings, and many institutions unwittingly slipped into the role of passive portfolio observer while the risk profiles of their exposures evolved over time...often with disastrous results.

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