Our Stress and Scenario Testing (SST) service provides outcomes at loan by loan level under a range of macroeconomic scenarios. We have long provided SST for major lenders, taking data e.g. monthly or quarterly, uploaded to our secure website and placing the results, bespoke to the client’s requirements, to the site for retrieval. Typically, the process takes only a few days, although the initial test usually takes a little longer whilst data issues are resolved.

Using our real past downturn default and loss data, from the 1989-1981 housing crisis, we are able to forecast the Probability of Possession (PP) and the Loss in the Event of Possession (LIEP) under any one of the four standard scenarios pertaining in our downturn default database. Loan to Value (LTV) and loan seasoning, together with arrears profile, are the key drivers for Dr Satchell’s SST hazard rates, employed to forecast the PP for each loan. SST then forecasts LIEP for each loan, typically for each year over a 10 year period, with output to meet client needs. Where a result is required for a scenario (say unemployment at 12%) that varies from the rate applicable to the selected SST scenario (10% in the above “worst case”), we employ output from Dr Satchell's Macro-Risk Model to vary the hazard rate as necessary.

SST requires revaluation of each property for which, as standard, we use Acadametrics Residential Asset Calculator (ARAC), based upon the factual Land Registry data. SST is flexible and revaluation can be based on: a client-specified index; e.g. Zoopla AVM data which can provide rental prices and yields and current distressed values to complement our historic loss data; the client’s AVM.

A Prospectus of the service is provided here. The loan data upon which the analysis is based are listed here. The results exampled here can either stand alone as reference points or be dovetailed with the lender’s own modelling solutions and assumptions. An overhead presentation of our service is provided here and the methodology is set out here.