This paper explains how unobserved borrower risk factors and changing economic expectations can interact to create vintage effects and parameter instability in mortgage credit risk models. We develop a model of mortgage choice and default behavior that demonstrates how this could have led to...

This paper develops a framework for understanding the model risks posed by the phenomenon of macroeconomic adverse selection. We explore the sources and implications of credit model instability arising from changes in economic conditions as well as changes in unobserved borrower risk factors. We...