Dr. Ted Hong, Beyondbond's President, was invited to present his research paper "Dynamic Econometric Loss Model -A Default Study of US Subprime Markets" at Rutgers University.

Abstract: The meltdown of the US subprime mortgage market in 2007 triggered a series of global credit events. Major financial institutions have written down approximately $120 billion of their assets to date and yet there does not seem to be an end to this credit crunch. With traditional mortgage research methods for estimating subprime losses clearly not working, it now requires revised modeling techniques and a fresh perspective of other macro-economic variables to help explain the crisis. During the subprime market rise/fall era, the Housing Price Index (HPI) and its annual appreciation (HPA) had been the main blessing/curse attributed by researchers. Unlike the traditional models, our Dynamic Econometric Loss (DEL) model applies not only the static loan and borrower characteristic variables such as loan terms, Combined-Loan-To-Value ratio (CLTV), Fair Isaac credit score (FICO), as well as dynamic macro-economic variables such as HPA to projects defaults and prepayments, but also the spectrum of delinquencies as an error correction term to add an additional 15% accuracy to the model projections. In additional to our delinquency attribute finding, we find that cumulative HPA and the change of HPA contribute various dimensions that greatly influence defaults. Another interesting finding is a significant long-term correlation between HPI and disposable income level (DPI). Since DPI is more stable and easier for future projections, it suggests that HPI will eventually adjust to coincide with DPI growth rate trend and that HPI could potentially experience as much as a 14% decrease by the end of 2009.