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The duration of foreclosures in the subprime mortgage market: a competing risks model with mixing

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  • Anthony Pennington-Cross

Abstract

This paper examines what happens to mortgages in the subprime mortgage market once foreclosure proceeding are initiated. A multinominial logit model that allows for the interdependence of the possible outcomes or risks (cure, partial cure, paid off, and real estate owned) through the correlation of associated unobserved heterogeneities is estimated. The results show that the duration of foreclosures is impacted by many factors including contemporaneous housing market conditions, the prior performance of the loan (prior delinquency), and the state-level legal environment.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-027.

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Date of creation: 2006
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Handle: RePEc:fip:fedlwp:2006-027

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Keywords: Mortgages;

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  1. Richard A. Phillips & Eric M. Rosenblatt, 1997. "The Legal Environment and the Choice of Default Resolution Alternatives: An Empirical Analysis," Journal of Real Estate Research, American Real Estate Society, vol. 13(2), pages 145-154.
  2. Lawrence, Edward C & Arshadi, Nasser, 1995. "A Multinomial Logit Analysis of Problem Loan Resolution Choices in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 202-16, February.
  3. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  4. Wen, Chieh-Hua & Koppelman, Frank S., 2001. "The generalized nested logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 627-641, August.
  5. Brent Ambrose & Anthony Sanders, 2004. "Legal Restrictions in Personal Loan Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 133-151, November.
  6. Richard A. Phillips & James H. VanderHoff, 2004. "The Conditional Probability of Foreclosure: An Empirical Analysis of Conventional Mortgage Loan Defaults," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(4), pages 571-587, December.
  7. Deng, Yongheng & Quigley, John M. & Van Order, Robert, 1999. "Mortgage Terminations, Heterogeneity, and the Exercise of Mortgage Options," Berkeley Program on Housing and Urban Policy, Working Paper Series qt96r560pg, Berkeley Program on Housing and Urban Policy.
  8. Brent W. Ambrose & Charles A. Capone, . "The Hazard Rates of First and Second Default," Zell/Lurie Center Working Papers 301, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  9. Harding, John P. & Miceli, Thomas J. & Sirmans, C. F., 2000. "Deficiency Judgments and Borrower Maintenance: Theory and Evidence," Journal of Housing Economics, Elsevier, vol. 9(4), pages 267-285, December.
  10. Brent W. Ambrose & Charles A. Capone, 1998. "Modeling the Conditional Probability of Foreclosure in the Context of Single-Family Mortgage Default Resolutions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 391-429.
  11. John M. Clapp & Yongheng Deng & Xudong An, 2006. "Unobserved Heterogeneity in Models of Competing Mortgage Termination Risks," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 243-273, 06.
  12. Anthony Pennington-Cross, 2004. "The value of foreclosed property," Working Papers 2004-022, Federal Reserve Bank of St. Louis.
  13. Karen M. Pence, 2003. "Foreclosing on opportunity: state laws and mortgage credit," Finance and Economics Discussion Series 2003-16, Board of Governors of the Federal Reserve System (U.S.).
  14. Lambrecht, Bart M & Perraudin, William R M & Satchell, Steven, 2003. " Mortgage Default and Possession under Recourse: A Competing Hazards Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 425-42, June.
  15. Dennis Capozza & Thomas Thomson, 2004. "Optimal Stopping and Losses on Subprime Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 115-131, November.
  16. Dennis Capozza & Thomas Thomson, 2006. "Subprime Transitions: Lingering or Malingering in Default?," The Journal of Real Estate Finance and Economics, Springer, vol. 33(3), pages 241-258, November.
  17. Ambrose, Brent W & Buttimer, Richard J, Jr & Capone, Charles A, 1997. "Pricing Mortgage Default and Foreclosure Delay," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 314-25, August.
  18. Michelle A. Danis & Anthony Pennington-Cross, 2005. "A dynamic look at subprime loan performance," Working Papers 2005-029, Federal Reserve Bank of St. Louis.
  19. Ko Wang & Leslie Young & Yuqing Zhou, 2002. "Nondiscriminating Foreclosure and Voluntary Liquidating Costs," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 959-985.
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Cited by:
  1. deRitis, Cristian & Kuo, Chionglong & Liang, Yongping, 2010. "Payment shock and mortgage performance," Journal of Housing Economics, Elsevier, vol. 19(4), pages 295-314, December.
  2. Yanan Zhang & Lu Ji & Fei Liu, 2010. "Local Housing Market Cycle and Loss Given Default: Evidence from Sub-Prime Residential Mortgages," IMF Working Papers 10/167, International Monetary Fund.
  3. Sarah W. Carroll & Wenli Li, 2008. "The homeownership experience of households in bankruptcy," Working Papers 08-14, Federal Reserve Bank of Philadelphia.
  4. 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.

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