That is, higher delinquencies are no  BIS Review 28/2003  1  longer isolated in a small portion of the portfolio managed by one loan officer. Instead, significant losses can occur simultaneously across the bank's loan portfolio. Avoiding the problems of "model risk" requires more-rigorous oversight of internal controls.
The model should be back-tested to verify that the factors it uses deliver the level of losses that was assumed when the loans were made and priced. Avoiding model risk also requires greater data integrity in loan application and underwriting systems, as data errors can also contribute to unintended results. Many banks today use credit-scoring models to help in mortgage and consumer credit originations.