Illustrative ExampleCredit

Reviewing a whole-loan tape before purchase

A structured credit team is offered a residential whole-loan tape and has two weeks to decide whether the price is right and what diligence would change the answer.

Institution type

Investment manager

Domain

Credit

Status

Hypothetical structure, no client, no outcome claim

The decision

Should the fund buy this tape at the offered price, and which assumptions about prepayment, default, and collateral would have to be wrong for that answer to change?

The approach

Start with the tape itself: field definitions, missingness, and whether the stratification the seller provided can be reproduced from the loan-level data. Then price it under a disclosed set of prepayment and default curves, with every curve and its source in an assumption register, and show how value moves as each assumption is stressed one at a time. The output is a price range with the assumptions that drive it, not a single number.

Typical workstreams

1. Tape audit. Reconcile the seller’s stratification to the loan-level file. Flag fields that cannot be trusted and borrowers that cannot be classified.
2. Assumption register. Write down every curve, its source, and its bounds before any cash flow is projected.
3. Pricing and sensitivity. Project cash flows under the base and stressed assumptions; report price as a range with the drivers named.
4. Transfer. Hand over the code and the register so the team can re-run it when the seller updates the tape.