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Stability in consumer credit scores: Level and direction of FICO score drift as a precursor to mortgage default and prepayment

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  • Smith, Brent C

Abstract

This article represents an extension of the expansive credit risk and credit migration literature, prominent in the corporate bond and securities risk pricing literature, to an analysis of the drift of consumer credit scores. A rich data set of residential mortgages is used to observe credit score migration post loan origination and in a test of the ability of credit score transition to serve as a precursor to potential default and prepayment. The results indicate credit scores provide signals and information to investors and servicing agents in a fashion similar to credit ratings on commercial paper as to default potential.

Suggested Citation

  • Smith, Brent C, 2011. "Stability in consumer credit scores: Level and direction of FICO score drift as a precursor to mortgage default and prepayment," Journal of Housing Economics, Elsevier, vol. 20(4), pages 285-298.
    • Handle: RePEc:eee:jhouse:v:20:y:2011:i:4:p:285-298
    DOI: 10.1016/j.jhe.2011.09.001
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    Cited by:

    1. Asish Saha & Hock-Eam Lim & Goh-Yeok Siew, 2021. "Housing Loan Repayment Behaviour in Malaysia: An Analytical Insight," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 20(2), pages 1-19, September.
    2. Asish Saha & Hock-Eam Lim & Goh-Yeok Siew, 2021. "Housing Loan Repayment Behaviour in Malaysia: An Analytical Insight," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 20(2), pages 141-159, September.
    3. Fernando Ferreira & Joseph Gyourko, 2015. "A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012," NBER Working Papers 21261, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Residential mortgage default; Risk; Lending; Housing economics; Mortgage underwriting; Consumer credit;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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