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http://ssrn.com/abstract=295633
 
 

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Risk Based Capital Requirements for Mortgage Loans


Paul S. Calem


Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Michael LaCour-Little


California State University at Fullerton

November 2001

FEDS Working Paper No. 2001-60

Abstract:     
We develop estimates of risk-based capital requirements for single-family mortgage loans held in portfolio by financial intermediaries. Our method relies on simulation of default and loss probability distributions via simulation of changes in economic variables with conditional default probabilities calibrated to recent actual mortgage loan performance data from the 1990s. Based on simulations with varying input parameters, we find that appropriate capital charges for credit risk vary substantially with loan or borrower characteristics and are generally below the current regulatory standard. These factors may help explain the high degree of securitization, or regulatory capital arbitrage, observed for this asset category.

Number of Pages in PDF File: 41

Keywords: Capital, mortgage, risk, regulation

JEL Classification: G21, G38

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Date posted: January 9, 2002  

Suggested Citation

Calem, Paul S. and LaCour-Little, Michael, Risk Based Capital Requirements for Mortgage Loans (November 2001). FEDS Working Paper No. 2001-60. Available at SSRN: http://ssrn.com/abstract=295633 or http://dx.doi.org/10.2139/ssrn.295633

Contact Information

Paul S. Calem (Contact Author)
Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
Michael LaCour-Little
California State University at Fullerton ( email )
5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)
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