Question: Mortgage rate modelling: a. Estimate a linear regression model to predict loan rate. Include the feature set from 2A. Plot and compare the average model

Mortgage rate modelling:

a. Estimate a linear regression model to predict loan rate. Include the feature set from 2A. Plot and compare the average model implied and observed loan rate over time and over each feature category (four charts). Provide your code, output for the model and interpret the output.

b. Suggest two additional features that you think can explain for mortgage loan rate. Explain the rationale (relation to LGD).

c. What should be the appropriate interest rate charged for a borrower with the following features LTV_orig_time=80, orig_time=20, FICO_orig_time=570? Include all your assumptions. [5 marks]

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