Gross defaults refer to the number of loans in a securitisation pool that have defaulted. Gross defaults are calculated as a percentage of the total principal amount of the loans in the pool.
Gross defaults are an important measure of the credit quality of a securitisation pool. A high level of gross defaults can indicate that the pool is likely to experience losses, and this can reduce the returns to investors.
There are a number of applications for gross defaults in securitisation. One application is to assess the risk of a securitisation investment. Investors can use gross defaults to estimate the potential losses they could incur if the securitisation pool defaults.
Another application of gross defaults is to monitor the performance of a securitisation pool. Investors can track gross defaults over time to see if the pool is becoming more or less risky.
Here are some other applications of gross defaults in securitisation:
- To set pricing for securitisation tranches
- To determine the level of credit enhancement required for a securitisation
- To calculate the loss-given-default for a securitisation
Gross defaults can be a useful tool for both investors and securitisation issuers. Investors can use gross defaults to assess the risk of a securitisation investment, and issuers can use gross defaults to monitor the performance of a securitisation pool.