Fontainebleau Miami Beach
4441 Collins Avenue
Miami Beach, FL 33140
Monday, March 14, 2011
POTENTIAL PITFALLS TO CREDIT MODELS IN AN IMPROVING ECONOMIC ENVIRONMENT
During periods of economic stress, originators typically produce very tightly controlled credit. As defaults shake out of the market, lenders see a dramatic improvement in credit quality. When the economy recovers and competition returns, so do higher levels of delinquency and losses. Lenders with credit scoring models calibrated on the events of the last three years are very likely to over-score new applicants as the market improves. This presentation discusses high-level steps risk managers may take to ensure model validity in a changing credit environment.