Measuring Total Mortgage Market Credit Risk
11 Pages Posted: 3 Oct 2015
Date Written: October 2, 2015
This paper proposes two measures of credit risk for the population of outstanding mortgages. The first uses an average ex ante default probability to characterize risk, the second uses the unexpected loss generated by the asymptotic single factor risk (ASFR) model, a probabilistic model of portfolio risk. Both approaches show that average market–wide expected default rate and the unexpected loss per dollar of outstanding mortgage balances were roughly constant during the 2002-2006 boom in US house prices.
Keywords: mortgage credit risk, expected loss, cycles
JEL Classification: G21, G28
Suggested Citation: Suggested Citation