PT - JOURNAL ARTICLE AU - Jian Hu AU - Richard Cantor TI - Measuring Final Loss Severity of Defaulted RMBS AID - 10.3905/jfi.2004.461454 DP - 2004 Dec 31 TA - The Journal of Fixed Income PG - 82--91 VI - 14 IP - 3 4099 - https://pm-research.com/content/14/3/82.short 4100 - https://pm-research.com/content/14/3/82.full AB - Investigation of three approaches to estimating final loss, given default, for residential mortgage-based securities recommends a blended approach that combines both static factors such as tranche size and dynamic factors such as cumulative loss as a share of principal balance reduced to date in a model to predict the remaining losses on non-matured defaulted securities. There is a survival bias in the current LGD data sample, in that defaulters that have not matured would sustain significantly smaller ultimate losses than defaulters that have matured. On average, a defaulted RMBS security is estimated to lose about 51% of its default date balance or 34% of its original balance. Empirical findings like this are essential to the calculation of expected loss rates and risk-based capital for structured products.