Staff Working Papers

Working Paper 03-1: Subprime and Prime Mortgages – Loss Distributions

Author:

​Anthony Pennington-Cross, Senior Economist

​This paper links the probabilities of default and prepayments to the distribution of losses associated with a synthetic portfolio of Fannie Mae and Freddie Mac mortgages randomly samples from 30-year fixed rate prime and subprime mortgages. The simulations exploit historical relationships found between mortgage characteristics and economic conditions in time and space as estimated in a competing risk conditional default and prepayment hazard model and a loss given default model.