Question
Given a mortgage portfolio with the following features, 1) Spread, 40 basis points 2) Last year default rate of mortgages of the same category, 0,5%
Given a mortgage portfolio with the following features,
1) Spread, 40 basis points
2) Last year default rate of mortgages of the same category, 0,5%
3) Historically average mortgage default rate, 2%
4) Historical recovery, 70% of face value
Is this mortgage portfolio really making money?
Which is the minimum spread required to make money?
Note = Take into account that a mortgage is a long term instrument
No
60 basis points will be the minimum spread
Yes
40 basis points is enough taking into account recovery rate
In order to give an answer, inflation expectations should be taken into account
There is no way to have an idea on profit and loss expectations for these kind of products
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