Why is Mortgage Portfolio Profitability needed?
Why it is needed?
It is a truism to say that ‘one cannot manage what one cannot see (and measure)’. Accordingly, accurate calculation of net profitability is essential for many purposes:
- Acceptance or rejection of the application on Day 1
- Determining the optimum loan to value ratio
- Determining the optimum maturity of the loan
- Pricing of the loan to allow for measured probabilities of default
- Prioritising loans for collections management, based on measured risk
- For the evaluation of the portfolio for sale or purchase (where different loan types and mortgages are not differentiated it is easy to average and thereby, by invisible cross-subsidisation, to confuse the profitability of the alternative sub- portfolios)