@article {Hayre5, author = {Lakhbir S. Hayre and Manish Saraf}, title = {A Loss Severity Model for Residential Mortgages}, volume = {18}, number = {2}, pages = {5--31}, year = {2008}, doi = {10.3905/jfi.2008.712347}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The loss severity model, combined with prepayment and default models, can be used to project loss-adjusted cash flows for mortgage pools and deals. In addition, the loss model can be used for identifying potentially risky loans in a portfolio of subprime loans. In this article we analyze loss severities on mortgage loans with varying borrower and loan characteristics, and we develop a predictive model for projecting losses. We also show that simplistic models that rely heavily on loan-to-value ratio produce unreliable loss severity projections and that a more comprehensive approach, such as the one described in this article, is required for accurately estimating credit risk.TOPICS: MBS and residential mortgage loans, big data/machine learning, legal and regulatory issues for structured finance}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/18/2/5}, eprint = {https://jfi.pm-research.com/content/18/2/5.full.pdf}, journal = {The Journal of Fixed Income} }