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A model of mortgage losses and its applications for macroprudential instruments

Listed author(s):
  • Hott, Christian

We develop a theoretical model of mortgage loss rates that evaluates their main underlying risk factors. Following the model, loss rates are positively influenced by the house price level, the loan-to-value of mortgages, interest rates, and the unemployment rate. They are negatively influenced by the growth of house prices and the income level. The calibration of the model for the US and Switzerland demonstrates that it is able to describe the overall development of actual mortgage loss rates. In addition, we show potential applications of the model for different macroprudential instruments: stress tests, countercyclical buffer, and setting risk weights for mortgages with different loan-to-value and loan-to-income ratios.

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File URL: https://www.econstor.eu/bitstream/10419/85249/1/770372228.pdf
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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 34/2013.

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Date of creation: 2013
Handle: RePEc:zbw:bubdps:342013
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  1. Campbell, John & Cocco, Joao, 2003. "Household Risk Management and Optimal Mortgage Choice," Scholarly Articles 3157876, Harvard University Department of Economics.
  2. Christian Hott & Pierre Monnin, 2008. "Fundamental Real Estate Prices: An Empirical Estimation with International Data," The Journal of Real Estate Finance and Economics, Springer, vol. 36(4), pages 427-450, May.
  3. 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.
  4. John Moore & Nobuhiro Kiyotaki, "undated". "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  5. Lambrecht, Bart & Perraudin, William & Satchell, Stephen, 1997. "Time to default in the UK mortgage market," Economic Modelling, Elsevier, vol. 14(4), pages 485-499, October.
  6. James M. Poterba, 1992. "Taxation and Housing: Old Questions, New Answers," NBER Working Papers 3963, National Bureau of Economic Research, Inc.
  7. Andrew F. Haughwout & Richard Peach & Joseph Tracy, 2008. "Juvenile delinquent mortgages: bad credit or bad economy?," Staff Reports 341, Federal Reserve Bank of New York.
  8. John Y. Campbell & João F. Cocco, 2011. "A Model of Mortgage Default," NBER Working Papers 17516, National Bureau of Economic Research, Inc.
  9. Hott, C., 2011. "Lending behavior and real estate prices," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2429-2442, September.
  10. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
  11. Yongheng Deng & John M. Quigley & Robert Van Order, "undated". "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Zell/Lurie Center Working Papers 322, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  12. Charles P. Himmelberg & Christopher J. Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
  13. Richard K. Green & Susan M. Wachter, 2005. "The American Mortgage in Historical and International Context," Working Paper 9094, USC Lusk Center for Real Estate.
  14. David Miles, 2005. "Incentives Information and Efficiency in the UK Mortgage Market," Economic Journal, Royal Economic Society, vol. 115(502), pages 82-98, 03.
  15. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  16. Harding, John P. & Rosenthal, Stuart S. & Sirmans, C.F., 2007. "Depreciation of housing capital, maintenance, and house price inflation: Estimates from a repeat sales model," Journal of Urban Economics, Elsevier, vol. 61(2), pages 193-217, March.
  17. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
  18. Jonathan McCarthy & Richard Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
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