Insights & News
Insights on risk management, model development, loss forecasting, CECL, and stress testing from practitioners who build the models. Thought before calculation, every time.
Seasoning curves show defaults or losses as a function of loan age or time-on-book (TOB).
Using publicly-available Fannie Mae mortgage data, we show the vacuity of the notion and the relationship.
TOB is an insufficient statistic for more fundamental risk factors that can be directly used.
Recent Insights
Time-on-Book Is Pyrite
Read more: Time-on-Book Is PyriteThere is no seasoning curve. There’s only 2009. Time-on-Book is a vacuous risk factor. Default humps are simply systemic events hitting whatever vintage ages happen to be on the book, not a law of loan age. We use public Fannie Mae data to make the point.
Credit Regimes, Risk Management, and the Value of Stress Testing
Read more: Credit Regimes, Risk Management, and the Value of Stress TestingIn loss forecasts, especially stress tests, banks estimate what they could lose, but most stop there. Credit losses exist in regimes — long stretches of nothing punctuated by sharp, severe transitions — and the only value of stress testing is deciding what to do before the shift happens. Most banks skip that step entirely. They…
SR 26-2 to SR 11-7 Mapping: From 21 ‘Sound Practices’ to 179 ‘Shoulds’
Read more: SR 26-2 to SR 11-7 Mapping: From 21 ‘Sound Practices’ to 179 ‘Shoulds’The revised MRM guidance (SR 26-2) replaced 179 “should” statements with 21 “sound practice” statements. We built the complete SR 26-2 to SR 11-7 mapping. Free spreadsheet download.
Was Private Credit Fooled by Its Own Success?
Read more: Was Private Credit Fooled by Its Own Success?The biggest impetus for Private Credit’s early growth was when regulated banks retreated from making riskier loans. Given the difference in capital structures, PC maintains an incentive to make riskier loans than banks. Credit losses tend to be either microscopic or traumatic–there’s generally been no in-between. Losses in most loan categories have been very low…
Mortgage Loss Forecasting: Slightly Lower Rate, Much Bigger Dollar Loss in Fort Myers
Read more: Mortgage Loss Forecasting: Slightly Lower Rate, Much Bigger Dollar Loss in Fort MyersHome prices in the Fort Myers MSA are down roughly 10% from their Q2 2023 peak. We modeled what happens if prices follow the 2006 to 2011 path to a 57% total decline, and compared projected losses and loss rates against the pre-crisis portfolio as of Q1 2007.
What Will Happen with a 10% Cap on Credit Card Rates?
Read more: What Will Happen with a 10% Cap on Credit Card Rates?Among politicians and the public, there seems to be bipartisan support for a credit card interest rate cap (at 10%). Almost everyone is in favor of free stuff—why not zero rates—but there is no free lunch.
Do Hurricanes Affect Mortgage Losses?
Read more: Do Hurricanes Affect Mortgage Losses?Hurricanes cause defaults to spike but losses given defaults (LGDs) to drop, and the decreased LGDs tend to cancel out the increased default rates. That inverse relationship is different than the positive relationships in both good times and in times of stress, when both increase. Ignoring the implications of severe weather events can distort historical…
AI Risk Management Training for Banks — Interactive Course Demo | Spero Risk Associates
Read more: AI Risk Management Training for Banks — Interactive Course Demo | Spero Risk AssociatesInteractive AI risk management training for bank boards and executives — built by the same practitioners who develop and validate models at major financial institutions.
Transforming Risk Management through Interactive Learning
Read more: Transforming Risk Management through Interactive LearningAt Spero Risk, we’re revolutionizing compliance and risk management training. Our interactive platform goes beyond traditional methods to create engaging, effective learning experiences that stick.
