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Estimating Loan-to-Value and Foreclosure Behavior

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  • Arthur Korteweg
  • Morten Sorensen
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    Abstract

    We develop and estimate a unified model of house prices, loan-to-value ratios (LTVs), and trade and foreclosure behavior. House prices are only observed for traded properties, and trades are endogenous, creating sample-selection problems for traditional estimators. We develop a Bayesian filtering procedure to recover the price path for each individual property and produce selection-corrected estimates of historical LTVs and foreclosure behavior, both showing large unprecedented changes since 2007. Our model reduces the index revision problem by nearly half, and has applications in economics and finance (e.g., pricing mortgage-backed securities).

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17882.

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    Date of creation: Mar 2012
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    Handle: RePEc:nbr:nberwo:17882

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    1. Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2813, C.E.P.R. Discussion Papers.
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    4. Hwang, Min & Quigley, John M., 2003. "Selectivity, Quality Adjustment and Mean Reversion in the Measurement of House Values," Berkeley Program on Housing and Urban Policy, Working Paper Series, Berkeley Program on Housing and Urban Policy qt4045q0v3, Berkeley Program on Housing and Urban Policy.
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    6. Chris Downing & Richard Stanton & Nancy Wallace, 2005. "An Empirical Test of a Two-Factor Mortgage Valuation Model: How Much Do House Prices Matter?," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 33(4), pages 681-710, December.
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    18. Gatzlaff, Dean H. & Haurin, Donald R., 1998. "Sample Selection and Biases in Local House Value Indices," Journal of Urban Economics, Elsevier, vol. 43(2), pages 199-222, March.
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    Cited by:
    1. Steven Laufer, 2013. "Equity extraction and mortgage default," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2013-30, Board of Governors of the Federal Reserve System (U.S.).

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