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.
We extend our Fort Myers Fannie mortgage loss analysis by showing how loans, ranked by expected loss rates and updated LTVs, perform if home prices decline 57%.
We then compare 2007 and 2025 portfolios to show why a crisis could re-occur.
Recent Insights
The Good, the Bad and the Ugly
Read more: The Good, the Bad and the UglyA little of something bad can ruin the whole batch. We ranked Fannie’s Fort Myers portfolio loan-by-loan and found that in a 2006 – 2011 repeat home-price crash, 10% of today’s loans generate nearly half the forecasted mortgage losses. That decile, alone, generates losses greater than The Crisis, and overall loss rates approach crisis levels.
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…
Fort Myers Mortgage Risk: A Repeat of The Crisis Would Be… a Crisis
Read more: Fort Myers Mortgage Risk: A Repeat of The Crisis Would Be… a CrisisPost-crisis underwriting standards are supposed to have reduced credit risks. Our purpose is to investigate this claim and determine whether creditworthiness has truly improved. Evidence from our study of mortgage risk in one town, Fort Myers, says, “No, it hasn’t.”
A 10% Cap on Credit Card Rates < Losses + Expenses
Read more: A 10% Cap on Credit Card Rates < Losses + ExpensesCharge-offs run 4% at big banks and 9% at small ones, before the cost of capital or any expenses. A 10% cap doesn’t cover it. If you disagree, we’ll happily borrow from you at zero percent for a long, long time.
Hurricane Mortgage Losses Are Surprisingly Low
Read more: Hurricane Mortgage Losses Are Surprisingly LowHurricanes 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.
