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Impairment and Negative Equity in the Irish Mortgage Market

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Author Info

  • Kelly, Robert

    (Central Bank of Ireland)

  • McCarthy, Yvonne

    (Central Bank of Ireland)

  • McQuinn, Kieran

    (Central Bank of Ireland)

Abstract

Understanding the true scale of the difficulties in the Irish mortgage market is of key importance from a financial stability, fiscal and social perspective. To date, much of the analysis and discussion of the Irish market has tended to focus on either the concept of mortgage repayment distress or potential negative equity. However, the combination of these two factors raises fundamental policy issues. Building on earlier work, which used the Survey on Income and Living Conditions (SILC), we marry existing estimates of repayment distress with estimates of negative equity for a representative sample of Irish households. Using copula modelling we then examine the dependence structure across the distributions of mortgage delinquency and solvency for these households. As a result, we are in a position to estimate the probability that a household experiencing repayment distress might also be in negative equity.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 9/RT/11.

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Date of creation: May 2011
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Handle: RePEc:cbi:wpaper:9/rt/11

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Keywords: Credit; Solvency; Delinquency; Copula;

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References

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  1. Genest, Christian & Rémillard, Bruno & Beaudoin, David, 2009. "Goodness-of-fit tests for copulas: A review and a power study," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 199-213, April.
  2. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2008. "Housing busts and household mobility," Staff Reports 350, Federal Reserve Bank of New York.
  3. Hugo Benítez-Silva & Selcuk Eren & Frank Heiland & Sergi Jiménez-Martín, 2008. "How well do individuals predict the selling prices of their homes?," Economics Working Papers 1065, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2008.
  4. Olivier Scaillet, 2005. "Kernel Based Goodness-of-Fit Tests for Copulas with Fixed Smoothing Parameters," FAME Research Paper Series rp145, International Center for Financial Asset Management and Engineering.
  5. Yvonne McCarthy & Kieran McQuinn, 2011. "How Are Irish Households Coping with their Mortgage Repayments? Information from the Survey on Income and Living Conditions," The Economic and Social Review, Economic and Social Studies, vol. 42(1), pages 71-94.
  6. Neil Bhutta & Jane Dokko & Hui Shan, 2010. "The depth of negative equity and mortgage default decisions," Finance and Economics Discussion Series 2010-35, Board of Governors of the Federal Reserve System (U.S.).
  7. Wilson Sy, 2007. "A Causal Framework for Credit Default Theory," Research Paper Series 204, Quantitative Finance Research Centre, University of Technology, Sydney.
  8. Georgarakos, Dimitris & Lojschova, Adriana & Ward-Warmedinger, Melanie E., 2009. "Mortgage Indebtedness and Household Financial Distress," IZA Discussion Papers 4631, Institute for the Study of Labor (IZA).
  9. Andrew Haughwout & Ebiere Okah & Joseph Tracy, 2009. "Second chances: subprime mortgage modification and re-default," Staff Reports 417, Federal Reserve Bank of New York.
  10. McCarthy, Yvonne & McQuinn, Kieran, 2010. "How are Irish households coping with their mortgage repayments? Information from the SILC Survey," Research Technical Papers 2/RT/10, Central Bank of Ireland.
  11. David Duffy, 2010. "Negative Equity in the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 41(1), pages 109-132.
  12. Henley, Andrew, 1998. "Residential Mobility, Housing Equity and the Labour Market," Economic Journal, Royal Economic Society, vol. 108(447), pages 414-27, March.
  13. Keeney, Mary J. & O’Donnell, Nuala, 2009. "Financial Capability:New Evidence for Ireland," Research Technical Papers 1/RT/09, Central Bank of Ireland.
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Citations

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Cited by:
  1. McGuinness, Anne, 2011. "The Distribution of Property Level Mortgage Arrears," Economic Letters 06/EL/11, Central Bank of Ireland.
  2. Reamonn Lyndon & Yvonne McCarthy, 2013. "What Lies Beneath? Understanding Recent Trends in Irish Mortgage Arrears," The Economic and Social Review, Economic and Social Studies, vol. 44(1), pages 117–150.
  3. Kennedy, Gerard & McIndoe Calder, Tara, 2011. "The Irish Mortgage Market: Stylised Facts, Negative Equity and Arrears," Research Technical Papers 12/RT/11, Central Bank of Ireland.
  4. McCarthy, Yvonne & McQuinn, Kieran, 2013. "Price expectations, distressed mortgage markets and the housing wealth effect," Research Technical Papers 06/RT/13, Central Bank of Ireland.
  5. McCarthy, Yvonne & McQuinn, Kieran, 2013. "Credit conditions in a boom and bust property market," Research Technical Papers 08/RT/13, Central Bank of Ireland.

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