LDR Score - Loan Default Risk Score

Much has been written about what caused the Foreclosure Crisis, but it cannot be denied that a large part of the Crisis was the result of people buying homes that they could not afford.  

Loans were provided to homeowners primarily based upon Credit Scores.  However, as even Fannie Mae admits, Credit Scores were not meant to evaluate Default Risk on individual mortgage loans.  Today, Fannie Mae still uses Credit Scores, Equity and Debt Ratios to approve loans, but each category is “rated” individually, and not in an integrated manner. 

Under new proposed regulations, the “Qualified Residential Mortgage” (QRM) will use Equity, Debt Ratios, and the previous 24 month history of late payments to approve loans.  However, it does nothing to access actual default risk.  Even worse, non QRM loans do not even afford this protection.

The LDR Score is a comprehensive methodology of evaluating the Default Risk of individual loans.  The score was developed after examining thousands of both performing loans and defaulted loans, and thousands of modifications.  The results of the exams “identified” common characteristics of “troubled” or “defaulted loans” that did not exist in “strong” performing loans. 

Further examination of the loans found that these same characteristics were usually present when the loans were underwriten.  However, underwriting processes were not sufficient to identify these characteristics, or to properly evaluate the risk. 

LFI Analytics has developed a complex algorithm that uses the “identified characteristics” of defaulting loans and incorporated those characteristics with other known rish factors to determine Default Risk of individual loans.   The end result is the Loan Default Risk Score (LDR Score).

Major Benefits of the LDR Score include:

Quantitative Measurement Of Default Risk. 

Easily incorporated into underwriting analysis for better approvals.

Improved Portfolio Risk Management.

Provides loan purchasers a method to determine if a loan fits their portfolio.

Offers Rating Agencies a measure for evaluating MBS.

Lessens Risk of Foreclosures



LDR Score For Modification