Default Frequency

In securitisation, default frequency is the percentage of borrowers who stuff up their loans within a specified period of time. It is typically measured as the number of defaults per 100 borrowers.

Default frequency can vary depending on a number of factors, including the type of loan, the creditworthiness of the borrowers, and the economic conditions. For example, default frequency is typically higher for subprime loans than for prime loans.

Investors in securitisations should carefully consider the default frequency of the underlying loans before investing. A high default frequency can lead to losses for investors.

 

Here are some examples of default frequency in securitisation:

• A securitisation of mortgages might have a default frequency of 2%. This means that 2% of the borrowers in the securitisation are expected to default on their loans over the next year.
• A securitisation of credit cards might have a default frequency of 5%. This means that 5% of the borrowers in the securitisation are expected to default on their loans over the next year.