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The three co-authors conducted a panel discussion on consumer credit metrics and their application to the ABS and RMBS markets. Their three presentations follow.
TIM MARTIN
While loan-level and CLTV information has been around for a while, adding consumer credit metrics to RMBS analysis now completes the 360-degree view of risk. Consumer credit metrics contribute information about the underlying borrower's other credit (e.g., his other mortgages, auto loans, credit cards, etc.). This type of underlyingborrower information can help RMBS investors understand the relative value (in terms of future default and pre-payment) of two bonds that may appear similar based on traditional loan-level analysis. Even something as simple as refreshing the credit score (versus the "stale" one provided at origination) can be helpful; while a multivariate credit model adds even more value.
Two pieces of this pie have been traditionally available (see Slide 1):
1. Loan-level performance (e.g., the LoanPerformance Securities Database)
2. Property data (e.g., CoreLogic's True LTV)
The new, third slice (to complete the 360-degree view) is to add Consumer Credit Metrics (e.g., TransUnion's Consumer Risk Indicators). In the traditional information, you learn a lot about the mortgage that's in the security. With the Consumer Credit Metrics, you learn a lot about an underlying borrower's other debt (whether mortgage-related, auto, credit card, etc.).
On Slide 2, information shown above the dashed line is traditionally available information, and in looking just at this information, you see two borrowers that seem to be very similar. However, the additional data shown below the dashed line are examples of Consumer Credit Metrics. Here we see
* Borrower A's bureau score has dropped since origination - he has other mortgage debt, is almost fully utilized on his credit card, and is delinquent on his auto loan
* In contrast, Borrower B has improved his bureau score since origination, has lots of room left on his credit card, and pays his auto loan
The differences when you refresh the information after origination and add Consumer Credit Metrics variables can be quite eye...