Search Results
Working Paper
A portfolio view of consumer credit
This paper takes a portfolio view of consumer credit. Default models (credit-risk scores) estimate the probability of default of individual loans. But to compute risk-adjusted returns, lenders also need to know the covariances of the returns on their loans with aggregate returns. Covariances are independently relevant for lenders who care directly about the volatility of their portfolios, e.g., because of Value-at-Risk considerations or the structure of the securitization market. Cross-sectional differences in these covariances also provide insight into the nature of the shocks hitting ...
Working Paper
Determinants and consequences of mortgage default
We study a unique data set of borrower-level credit information from TransUnion, one of the three major credit bureaus, which is linked to a database containing detailed information on the borrowers? mortgages. We find that the updated credit score is an important predictor of mortgage default in addition to the credit score at origination. However, the 6-month change in the credit score also predicts default: A positive change in the credit score significantly reduces the probability of delinquency or foreclosure. Next, we analyze the consequences of default on a borrower?s credit score. The ...
Journal Article
The role of relationships in small-business lending
In the presence of imperfect information, both large and small banks try to find alternative ways to identify creditworthy borrowers. Lending relationships are one way to go about this. Relationships between banks and small businesses tend to be much closer than those between banks and large businesses. This Commentary explains why lending relationships are valuable to both small businesses and banks, how they reduce information-lending problems, and what other solutions exist to help in the reduction.
Conference Paper
The small business lending relationship: session A
Working Paper
Credit where none is due? Authorized user account status and \"piggybacking credit\"
An "authorized user" is a person who is permitted by a revolving account holder to use an account without being legally liable for any charges incurred. The Federal Reserve's Regulation B, which implements the 1974 Equal Credit Opportunity Act, requires that information on spousal authorized user accounts be reported to the credit bureaus and considered when lenders evaluate credit history. Since creditors generally furnish to the credit bureaus information on all authorized user accounts, without indicating which are spouses and which are not, credit scoring modelers cannot distinguish ...
Journal Article
Did credit scores predict the subprime crisis?
One would think that credit scores would be a predictor of who would default on a subprime mortgage. But that doesn't seem to be the case.
Working Paper
The effect of credit scoring on small business lending in low- and moderate-income areas
This paper empirically examines the effect of the use of credit scoring by large banking organizations on small business lending in low- and moderate-income (LMI) areas. Using census tract level data for the southeastern United States, the authors estimate that credit scoring increases small business lending by $16.4 million per LMI area served. Furthermore, this effect is almost 2.5 times larger than that estimated for higher income census tracts ($6.8 million). The authors also find that credit scoring increases the probability that a large banking organization will make small business ...
Working Paper
Credit Score Doctors
We study how the existence of cutoffs in credit scores affects the behavior of homebuyers. Borrowers are more likely to purchase houses after their credit scores cross over a cutoff to qualify them for a higher credit score bin. However, the credit accounts of these individuals (crossover group) are more likely to become delinquent within four years following home purchases than the accounts of those who had stayed in the same bin (non-crossover group). The effect is not only concentrated in subprime bins, but in other bins as well. It is neither limited to pre-crisis period nor curtailed by ...