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Loss given default of high loan-to-value residential mortgages

Author

Listed:
  • Qi, Min
  • Yang, Xiaolong

Abstract

This paper studies loss given default using a large set of historical loan-level default and recovery data of high loan-to-value residential mortgages from several private mortgage insurance companies. We show that loss given default can largely be explained by various characteristics associated with the loan, the underlying property, and the default, foreclosure, and settlement process. We find that the current loan-to-value ratio is the single most important determinant. More importantly, mortgage loss severity in distressed housing markets is significantly higher than under normal housing market conditions. These findings have important policy implications for several key issues in Basel II implementation.

Suggested Citation

  • Qi, Min & Yang, Xiaolong, 2009. "Loss given default of high loan-to-value residential mortgages," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 788-799, May.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:5:p:788-799
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    References listed on IDEAS

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