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Better Decision-Making Enabled by Metalog Distributions

Tom Keelin, Chairman of Millennial Capital, LLC & Founder and Managing Partner of Keelin Reeds Partners
September 18, 2019 (Invited Talk)

Abstract: During the 2007-8 financial crisis, many US banks failed. The FDIC acquired their assets, including troubled residential mortgages, and in many cases repackaged them into pools and sold them at public auction. My partners and I faced a major decision as to how much money to bid for such a pool. Use of traditional decision-analysis approaches would have led to a poor bidding decision. A good bidding decision was enabled by use of the metalog distributions.

After acquiring the pool, we faced many decisions about how to best achieve decision quality for exiting each of 1,456 residential mortgages. Facilitated by "exit buddy” models, we considered alternatives such as loan modifications, principal forgiveness, "cash for keys”, and foreclosure based on analyses tailored to individual borrower circumstances. Crucial to our considerations where values associated with helping people stay in their homes while at the same time providing a return for investors. Major learnings from these stressful times will be highlighted.

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Keywords: analysis and modeling anamod, risk and uncertainty riskunc, probability assessment probass

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