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The Role of Credit Scores in Consumer Loan Securitization

Date: February 6, 2015

Credit scores can and should play a critical role in the loan-securitization process, by helping quantify portfolio risk upon establishment of a Master Trust, and continuing to monitor risk as part of ongoing Master Trust management. This paper details the correct application of credit scores within the securitization process, including the relationship between scores and probability of default (PD). It also addresses an historic "disconnect" that led to misinterpretation of the risk credit scores represent, and spells out a remedy for correcting that oversight.