TY - JOUR T1 - Measuring Final Loss Severity of Defaulted RMBS JF - The Journal of Fixed Income SP - 82 LP - 91 DO - 10.3905/jfi.2004.461454 VL - 14 IS - 3 AU - Jian Hu AU - Richard Cantor Y1 - 2004/12/31 UR - https://pm-research.com/content/14/3/82.abstract N2 - Investigation of three approaches to estimating final loss, given default, for residential mortgage-based securities recommends a blended approach that combines both static factors such as tranche size and dynamic factors such as cumulative loss as a share of principal balance reduced to date in a model to predict the remaining losses on non-matured defaulted securities. There is a survival bias in the current LGD data sample, in that defaulters that have not matured would sustain significantly smaller ultimate losses than defaulters that have matured. On average, a defaulted RMBS security is estimated to lose about 51% of its default date balance or 34% of its original balance. Empirical findings like this are essential to the calculation of expected loss rates and risk-based capital for structured products. ER -