Predictive Modeling of Default Scenarios in the CMBS Market: A Macroeconomic Approach

Abstract

This study analyzes potential default risks in Mortgage-Backed Securities (MBS) using time series data from 2010 to 2023. Employing Vector Autoregression (VAR) models to forecast economic indicators and calculate DTI and LTV ratios, which are crucial for predicting defaults in the MBS market. Our analysis, based on two economic models, examines the influence of macroeconomic factors and credit default risks on residential and commercial properties, such as Fixed-Rate and Adjustable-Rate Mortgages. The findings suggest that despite the significant impact of the pandemic, the likelihood of default in the American MBS market over the next 15 years remains relatively low. The study emphasizes the significance of comprehending the relationship between macroeconomic conditions and MBS default risks, providing a comprehensive methodology for future research.