Over the past several years Prescio Consulting has been involved in developing a loan loss mitigation model for the mortgage market. The approach has been to optimize the expected value of the net cash flow generated by a mortgage and/or HELOC at both the individual loan and portfolio levels. Extensive stress testing and scenario analysis was included to provide the user with a high level of understanding of the sensitivity of the individual loans and the portfolios to changes in the underlying variables. The modeling approach included a probability of default model and a future home value model to aid in the identification of highly stressed borrowers and more accurately assesses the loss given default. The combination of the PD and LGD along with a model estimating the maximum likely payment for a given borrower provided the foundation for the optimization approach to loan valuation for the investor.