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Self-Selection and Tests for Bias and Risk in Mortgage Lending: Can You Price the Mortgage If You Don't Know the Process?

There is increasing interest in understanding the determinants of mortgage rejection by lenders and default by borrowers. Although many researchers have proposed simple single-equation models of rejection and default, we argue that far more complex econometric specifications are needed. This paper focuses attention on problems of sample selection in the process creating a sample of applicants for conventional mortgages. We illustrate that corrections for sample selection bias may have a substantial effect on estimation results and hence should not be ignored in studies of mortgage rejection or default.

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File URL: http://pages.jh.edu/jrer/papers/pdf/past/vol11n01/v11p087.pdf
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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 11 (1996)
Issue (Month): 1 ()
Pages: 87-102

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Handle: RePEc:jre:issued:v:11:n:1:1996:p:87-102
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/
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Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Web: http://pages.jh.edu/jrer/about/get.htm Email:


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  1. James A. Berkovec & Glenn B. Canner & Stuart A. Gabriel & Timothy H. Hannan, 1994. "Race, redlining, and residential mortgage loan performance," Proceedings, Federal Reserve Bank of Philadelphia, pages 263-298.
  2. Ferguson, Michael F & Peters, Stephen R, 1995. " What Constitutes Evidence of Discrimination in Lending?," Journal of Finance, American Finance Association, vol. 50(2), pages 739-48, June.
  3. Alicia H. Munnell, 1992. "Mortgage lending in Boston: interpreting HMDA data," Working Papers 92-7, Federal Reserve Bank of Boston.
  4. Meng, Chun-Lo & Schmidt, Peter, 1985. "On the Cost of Partial Observability in the Bivariate Probit Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 71-85, February.
  5. Yezer, Anthony M J & Phillips, Robert F & Trost, Robert P, 1994. "Bias in Estimates of Discrimination and Default in Mortgage Lending: The Effects of Simultaneity and Self-Selection," The Journal of Real Estate Finance and Economics, Springer, vol. 9(3), pages 197-215, November.
  6. Fishe, Raymond P. H. & Trost, R. P. & Lurie, Philip M., 1981. "Labor force earnings and college choice of young women: An examination of selectivity bias and comparative advantage," Economics of Education Review, Elsevier, vol. 1(2), pages 169-191, April.
  7. William C. Hunter & Mary Beth Walker, 1995. "The cultural affinity hypothesis and mortgage lending decisions," Working Paper Series, Issues in Financial Regulation 95-8, Federal Reserve Bank of Chicago.
  8. Berkovec, James A, et al, 1994. "Race, Redlining, and Residential Mortgage Loan Performance," The Journal of Real Estate Finance and Economics, Springer, vol. 9(3), pages 263-94, November.
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