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Mortgage Loan Characteristics , Unobserved Heterogeneity and the Performance of United Kingdom Securitised Sub-Prime Loans

Author

Listed:
  • Lanot, Gauthier

    () (Department of Economics, Umeå School of Business and Economics,)

  • Leece, David

    () (Keele Management School)

Abstract

The research estimates a competing risk model of mortgage terminations on samples of UK securitised subprime mortgages. Given the argued role of these types of loan in the recent financial crisis then it is important to better understand their performance and supposed idiosyncratic behaviour. The methodological and empirical advance is the use of a general, flexible modelling of unobserved heterogeneity over several dimensions, controlling for both selection issues involving initial mortgage choices and dynamic selection over time. Moreover, we estimate specific coefficients for this unobserved heterogeneity and determine the correlation between the unobserved components of default and prepayment. The paper demonstrates the need for researchers and practitioners to jointly estimate household choices whiles controlling for selectivity through unobserved heterogeneity.

Suggested Citation

  • Lanot, Gauthier & Leece, David, 2014. "Mortgage Loan Characteristics , Unobserved Heterogeneity and the Performance of United Kingdom Securitised Sub-Prime Loans," Umeå Economic Studies 876, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0876
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    Cited by:

    1. McCann, Fergal, 2014. "Modelling default transitions in the UK mortgage market," Research Technical Papers 18/RT/14, Central Bank of Ireland.

    More about this item

    Keywords

    Subprime mortgages; unobserved heterogeneity; household behaviour; loan performance;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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