Conceptual Data Mining Framework for Mortgage Default Propensity

In this Knowledge Sharing article, Wei Lin and Pedro De Souza focus on Dodd-Frank Act Qualified Residential Mortgages (QRM) exemption rules applied to asset-backed securities (ABS) that are collateralized exclusively by residential mortgages. The approach serves as an initial step in calculating and evaluating total accumulated risk for asset-backed security mortgage pools to determine an approach for mandated risk retention.

This article is organized into five sections.

Section I - general introduction to the business challenges

Section II - an overview for the framework flow.

Section III - discusses the process for QRM, profile data consolidation, and synthetic sample data preparation. The qualification results of the samples are analyzed.

Section IV - Household lifecycle model and mortgage default/prepayment model are introduced and apply to non-qualified residential mortgage default propensity forecasting. Three nonqualified QRM samples are presented.

Section V – Conclusion.

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