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	Risk-based pricing - Wikipedia, the free encyclopedia
		Risk-based pricing is the methodology within the mortgage and financial service industries to Pre-qualify programs and subsequently adjust interest rates, mitigating any increased risk with increased cost.
		Risk factors generally depend on an individuals financial and credit risk factors as well as the perceived risk of underlying property or other collateral.
		Risk-based pricing can also be manipulated within a business practice to wield deceptive marketing and predatory lending practices such as the bait and switch.
	en.wikipedia.org /wiki/Risk_based_pricing (267 words)

	Risk based pricing \| Topic Definition \| Find the Meaning and Define the Answer of Risk based pricing (Site not responding. Last check: 2007-11-01)
		Risk based pricing is the practice in the financial services industry to charge different interest rates on the same loan to different people, depending on their credit score and other factors which make it seem like they are more likely to not pay back the loan.
		The idea of the process is to avoid the tragedy of the commons, which happen if everyone had the same interest rate, since those who were less likely to default are paying subsidizing in a way those who do default.
		In risk based pricing, those who are more likely to default help pay for their own costs to the company, while those who have flawless records get supposedly cheaper interest rates then they could before.
	www.thefreeencyclopedia.com /definition/word.aspx?w=Risk_based_pricing (310 words)

	Why Were Banks Better Off in the 2001 Recession? - Federal Reserve Bank of New York (Site not responding. Last check: 2007-11-01)
		Thus, the pricing schedule in the syndicated loan market was about one-third more risk-sensitive in the 2001 recession than in the previous downturn, suggesting that banks are doing a better job of incorporating risk in their pricing schedules.
		We would also expect other financial institutions that assume relatively little credit risk as part of their operations—such as asset managers, either in the form of insurance companies or mutual or pension funds—to be net sellers of protection (net buyers of credit risk).
		For example, banks have improved their ability to price the risk they assume, as evidenced by the shrinking relative spreads of loans to corporate bonds in the syndicated loan market and the steeper pricing schedules in retail and small-business lending.
	www.ny.frb.org /research/current_issues/ci10-1/ci10-1.html (4439 words)

	FMF \| Risk-Based Pricing: Are There Fair Lending Implications? (Site not responding. Last check: 2007-11-01)
		Risk-based pricing adds a variety of additional analytical tools and systems integration, to produce a loan-level pricing for each individual borrower based on his or her unique financial characteristics.
		Implementation of risk-based pricing must be done in a way that ensures that biased lending practices are not simply automated, thereby perpetuating such practices while simultaneously reducing the ability to detect and challenge those activities.
		If pricing models are capable only of estimating credit risk based on prior credit behavior, they will fail to recognize the value of borrowers improving their credit performance prospects through high-quality counseling.
	www.fanniemaefoundation.org /programs/hff/v1i2-fair_lending.shtml (1633 words)

	FDIC: Strengthening Financial Risk Management at the FDIC
		Risk systems are broadly accessible to individuals throughout the Corporation through a user-friendly interface — at desktops, in the field, on the road — and all risk models and inputs run on a single, fast IT platform
		Risk analysis is the province of a dedicated risk management group comprised of half a dozen or more professionals and headed, potentially, by a Chief Risk Officer.
		Typically a dedicated risk group of perhaps a half dozen professionals headed by a Chief Risk Officer would be assembled to handle the increased workload, which would include not only cutting edge analyses and ongoing synthesis, but also an orchestration of efforts to instill a risk management culture within the organization.
	www.fdic.gov /deposit/insurance/strengthening/pgs51-55.html (1418 words)

	Risk Based Lending - The Credit Union Solution
		Although the program is based on the latest research by industry experts in credit evaluation, its foundation is firmly built on the credit union philosophy.
		Unlike other risk based lending programs that focus only on the risk of "delinquency default", this program uses a "blended" dual-risk score matrix that measures both delinquency and bankruptcy default risk.
		This "blending" resulted in a risk assessment matrix that was stronger than the use a single risk score or the use of two unblended risk scores.
	www.riskbasedlending.com (1325 words)

	The Pricing Puzzle
		Both pricing models are indifferent to the actual distribution of a product among consumers, making it impossible—in theory—for pharmaceutical companies to exercise any social obligations toward price-sensitive patients by adjusting prices.
		Some take the view that a reasonable price is one in which the selling price does not greatly exceed the full cost of researching, developing, manufacturing, marketing, and distributing the drug, where costs include a return on the investment sufficient to cover the investor’s risks of failure and the opportunity costs of capital.
		Price controls on oil and natural gas in the 1970s led to widespread artificial shortages and long lines at the gasoline pump.
	pubs.acs.org /subscribe/journals/mdd/v04/i03/html/03zall.html (2759 words)

	Federal Reserve Bank of Minneapolis - Community Dividend 2000 Issue 2 - Loan Pricing: Models for Determining Interest ... (Site not responding. Last check: 2007-11-01)
		A prime or base rate is established by major banks and is the rate of interest charged to a bank’s most creditworthy customers on short-term working capital loans.
		Because a loan’s risk varies according to its characteristics and its borrower, the assignment of a risk or default premium is one of the most problematic aspects of loan pricing.
		Whether loan-pricing models are based on a simple cost-plus approach or price leadership, use credit-scoring or other risk-based factors, they are valuable tools that allow financial institutions to offer interest rates in a consistent manner.
	woodrow.mpls.frb.fed.us /pubs/cd/00-2/loans.cfm?js=0 (1525 words)

	Community First Credit Union of Florida \| Risk (Site not responding. Last check: 2007-11-01)
		Risk-based pricing is a method of underwriting that evaluates the application risk factors and credit profile and adjusts the interest rate and possible discount points on a mortgage, up or down based on this risk evaluation.
		Your price is determined by evaluating all the risk factors that are involved in your loan, and determining where you fit into our risk/price range.
		Your final risk level is determined at time of closing, when there are no further changes to your credit profile or loan factors.
	www.communityfirstfl.org /risk.htm (749 words)

	Risk Special Reports - Tech vendors on a roll
		Risk wanted to establish the impact this had had on financial istitutions and gauge how successful their technology departments have been in keeping up with the pace of change.
		Just over 50% of respondents to Calypso’s credit risk survey said the technical infrastructure of their firm was inadequate to support the growth of their credit derivatives business (see figure 1).
		It is the optional extra measures such as risk-based pricing and taking a truly portfolio risk management approach in risk portfolio modelling that will give them the fullest competitive advantage, he adds.
	www.risk.net /public/showPage.html?page=192658 (2792 words)

	OTS Director Proposes 4 Principles For Responsible Risk-Based Pricing
		All participants in the mortgage market must encourage the implementation of risk-based pricing as a means of improving service and affordability and must guard against the possibility of technology producing barriers to home ownership for minority or lower income families and individuals.
		Seidman said that consumer education has "lagged behind the rapid deployment of credit-scoring in the home mortgage," but that she is "happy to see that leaders in the industry are beginning to work together to reduce this gap.
		She said her fourth principle may be the "trickiest, and most important to apply." Only by implementing risk-based pricing as a means of improving housing affordability, can true mastery over the technology be achieved.
	www.ots.treas.gov /docs/7/77884.html (714 words)

	Risk and Insurance : Table of Contents - June 1, 2004 (Site not responding. Last check: 2007-11-01)
		At SSM Health Care Corp.'s St. Louis headquarters, Goode Evans is responsible for the risk management needs of a unique company sponsored by the Franciscan Sisters of Mary.
		For risk managers, legacy and balance sheet issues are rising to the top of their agendas these days faster than a helium balloon floating into the sky.
		The only way to control costs is to wean consumers off their "cradle to grave" mentality and have them bear a bigger financial burden.
	www.riskandinsurance.com /040601_toc.asp (530 words)

	Bank - Wikipedia, the free encyclopedia
		Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s, the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.
		Second, they have moved toward risk-based pricing on loans, which means charging higher interest rates for those people who they deem more risky to default on loans.
		This dramatically helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and extends credit products to high risk customers who would have been denied credit under the previous system.
	en.wikipedia.org /wiki/Bank (2463 words)

	RiskMetrics Group - Managing Risk - Lesson: Risk-based limits (Site not responding. Last check: 2007-11-01)
		An aggregate risk limit should be set at the board level according to risk type, and then allocated to different business units.
		Furthermore, market risk limits may be set by currency and instrument type, and credit limits by counterparty, rating, industry, and geography.
		One advantage of the CreditMetrics portfolio perspective of credit risk is that you can flexibly set risk-based limits by country, industry, credit rating, and maturity or counterparty (as opposed to notional counterparty limits).
	www.riskmetrics.com /courses/managing_risk/limits.html (403 words)

	Converium: Risk adequate pricing approach in rating models
		This article is based upon a presentation held at the Annual Conference of PASA (Panamerican Surety Association) in Quito, Ecuador, on May 2, 2003 and upon Michel Dacorogna's articles "Evaluating corporate credit risk: a challenge" and "Credit risk models: do they deliver their promises".
		Before getting into a discussion of risk-based pricing, it is only natural to ask oneself what "risk" actually is. Nowadays the word is very trendy, and thus it is used frequently, and in many different contexts.
		But because many different ideas are hidden behind it, we need to define risk within the context of insurance: risk describes the uncertainty of the future outcome of a current decision or situation.
	www.converium.com /2415.asp (1975 words)

	Pricing Loans for Improved Profits (Site not responding. Last check: 2007-11-01)
		Risk and cost factors that must be considered in setting the loan's rate will be introduced and discussed.
		Each of the four major tools in use in the industry in pricing loans will be reviewed including cost plus, FTP, pricing loans of investments, and valuation.
		The session will be illustrated with examples of pricing a variety of loan types including mortgage, consumer, commercial, and commercial real estate and will include a number of 'thinking outside the box' examples.
	www.gsb.org /online_seminars/2006OLS/PricingLoans.htm (421 words)

	Risk-Based Pricing
		The setting of premiums based on the perceived credit quality of a borrower as well as the LTV of the mortgage.
		Risk-based pricing represents a matching of premium to risk, which is superior to current practice.
		However, there is resistance to it because its full implementation would result in considerably lower premiums for the better risks and considerably higher premiums for lower-quality borrowers; this development could significantly reduce the size of the conforming market.
	www.totalreturnannuities.com /annuity-glossary/r/risk-based-pricing.html (114 words)

	Risk Based Pricing - Credit Cards and Loans
		Risk Based Pricing is a process used widely in credit cards.
		If you have data on your credit file which makes you same a bigger risk to the credit card issuer, the APR offered will be higher to reflect that.
		Risk Based Pricing allows companies to accept more card applications, while still advertising the attention grabbing low rates that a customer with clean credit would be offered.
	www.1stop-finance.co.uk /glossary/risk_based_pricing.html (169 words)

	Las Vegas Real Estate News: Risk-based pricing reform may aid home buyers
		The legislation was a congressional response to the widespread use of electronic risk-based pricing systems used by lenders to make tiered rate quotes for mortgages and other credit: Applicants with good scores and clean credit files get the best rates; spotty credit histories get progressively worse quotes, based on credit scores.
		The key problem with risk-based pricing is that it is invisible to most consumers, especially first-time home buyers or loan applicants with thin credit files.
		Risk-based pricing systems are blind to botched information in consumers' files -- a situation several national studies have documented as commonplace -- and blind to the bad behavior of lenders and other reporters of credit data themselves.
	www.lasvegasnewspapers.com /realestate/RENov-26-Sat-2005/4307474.html (676 words)

	Beth Curran's Real Estate Update
		Risk-based pricing has been used in the private mortgage marketplace since the mid-1990s, when Fannie Mae and Freddie Mac introduced their Desktop Underwriter and Loan Prospector systems.
		All risk-based pricing involves electronic credit checks and credit scores, ordered and obtained in seconds from the national credit bureaus.
		The risk-based system then prices the mortgage according to the probability of future default posed by the applicant and the size of the downpayment.
	realtytimes.com /rtnews/nlpages/20060220_downpayments.htm?opendocument&Vol=87&ID=bethcurran (542 words)

	Technology for risk-based pricing and management. \| Personal Finance > Real Estate from AllBusiness.com
		A noted British economist once remarked that it is "far preferable to be roughly right than to be exactly wrong." Unfortunately, the preponderance of mortgage risk-management tools today focus on achieving these elusive "right" results and ignore the magnitude of potential error.
		VAR is a general framework for examining the risk or uncertainty in a financial portfolio over some future period.
		This seems to be a reasonable definition of risk - and ironically, one ignored by most risk-evaluation systems.
	www.allbusiness.com /personal-finance/real-estate-mortgage-loans/249384-1.html (615 words)

	Risk Based Pricing - Disclosure Notice
		The notice informed members that future advances would be at a rate based on their financial history and could fall within a range of interest rates.
		Specifically, you are interested in determining whether the notice complies with the Truth in Lending Act and Regulation Z. The notice was not sufficient and the FCU should send a revised notice.
		The FCU uses risk based pricing for its open end line of credit program.
	www.ncua.gov /RegulationsOpinionsLaws/opinion_letters/1998/98-0141.html (379 words)

	Mortgage Source - Quotes and Information on Argent Mortgage Company
		Note: The reasoning behind this is that a mortgage for a single-family dwelling is considered to be less of a perceived risk than one purchased for a unit in a high-rise condo building.
		As the entire risk-based pricing practice is about collecting and analyzing data, it is up to the lenders to evolve over time in ways that they can better assess and make determinations based upon their findings.
		Perhaps, a consequence of standardization of risk-based pricing is that there now exists a smaller gap between the amount lenders charge for interest on a prime loan versus a subprime (nonprime) loan.
	www.mortgage-source.net /argent/risk-based-pricing.html (425 words)

	CUNA News Now: Risk-based pricing regs postponed
		Specifically, it'll affect when credit reports are used to provide credit on "material terms" that are "materially less favorable" than the most favorable terms available to a "substantial portion of consumers" of that creditor.
		So far, there is little consensus on how to define these terms within the rule, which is one of the reasons why the regulation is being delayed.
		Another controversial issue in the risk-based pricing notice is whether financial institutions will be allowed to over-comply with the regulation.
	www.cuna.org /newsnow/04/wash111004-2.html?ref=hed (196 words)

	Auto Loans: Borrowers with dinged credit can still get a car -- for a price
		The little guys are pricing auto loans like the big guys, and savvy consumers may be able to cash in with lower interest rates while borrowers with shakier credit may get more opportunities for loans.
		Eighty percent of small lenders who participated in the annual Automobile Finance Study by the Consumer Bankers Association used tiered pricing for new and used auto loans in 1999, compared with 40 percent in 1998.
		The way to make risk-based pricing work for you rather than against you is to shop around for financing.
	www.bankrate.com /brm/news/auto/20000726.asp (875 words)

	The Attack on Credit Scoring and Other Risk-Based Insurance Pricing Tools
		This means that the cumulative book written by independent agency companies represents a much broader cross-section of the insurance shopping population and a much higher percentage of "nonstandard" drivers than the books written by captive and direct writers.
		Drive Insurance believes that creating an environment that forces insurers to knowingly price their policies inaccurately is not good public policy and is inherently unfair to safe drivers of all ethnic and income groups.
		Our elected officials need to be put on notice that banning actuarially justified risk-based pricing is a bad market outcome for independent agents and their customers.
	www.insurancejournal.com /magazines/southcentral/2005/04/18/partingshots/54672.htm?print=1 (635 words)

	What credit card risk pricing means for you
		Credit card providers that price according to risk have to advertise a rate that is given to 66% of all of successful applicants, but that means that one third of all of those that are offered a card will not get the rate they applied for.
		However, just because a provider does not price by risk, there is no guarantee that you will be accepted for the card.
		In some instances you may be declined by an issuer that offers one flat rate, when a provider that prices by risk would have offered you a card.
	www.tiscali.co.uk /money/features/credit-card-risk-pricing.html (748 words)

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