FRM Part II · FRM Exam Part II · Credit Scoring and Retail Credit Risk Management
A mortgage lender's defaulted loan has an outstanding balance of $200,000 at default. The property is sold for $150,000, with sale costs of $10,000 and no other recoveries. Ignoring discounting, what is the realized LGD?
The realized LGD is 30%. Net recovery after sale costs is $140,000, leaving a loss of $60,000 on a $200,000 balance. Ignoring the $10,000 costs would wrongly give 25%.
- A30%Correct
- B25%
- C20%
- D35%
Explanation
Net recovery = 150,000 - 10,000 = $140,000. Loss = 200,000 - 140,000 = $60,000. LGD = 60,000 / 200,000 = 30%. Forgetting the sale costs gives 25%.
Did you get it right without looking?
One question tells you little. A timed set on Credit Scoring and Retail Credit Risk Management shows your real accuracy, how long you take and where you lose marks.
More Credit Scoring and Retail Credit Risk Management questions
- A bank's risk committee is comparing its credit card portfolio with its portfolio of large corporate loans. Which of the following is the mo…
- A bank uses a behavioral score to manage existing revolving accounts. Compared with an application score, which feature best describes the b…
- Which is the primary purpose of behavioral scoring in the retail credit lifecycle?
- A bank validates a scorecard on a holdout sample. The Kolmogorov-Smirnov (KS) statistic is 45% and the AUC is 0.80. Which interpretation of …
- A lender builds a retail scorecard and wants a PD estimate that reflects the average default rate across a full economic cycle, rather than …
- A lender's collections team applies different strategies to delinquent accounts. Which approach best reflects risk-based collections managem…