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Mortgage Loan Characteristics , Unobserved Heterogeneity and the Performance of United Kingdom Securitised Sub-Prime Loans
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.ORCID iD: 0000-0001-9244-7018
Keele University.
(English)In: Real estate economics (Print), ISSN 1080-8620, E-ISSN 1540-6229Article in journal (Refereed) Epub ahead of print
Abstract [en]

We estimate a competing risk model of mortgage terminations on samples of U.K. securitized subprime mortgages. Given the role of these loans in the recent financial crisis it is important to understand their performance and supposed idiosyncratic behavior. We use a flexible modelling of unobserved heterogeneity over several dimensions, controlling for selection issues involving initial mortgage choices and dynamic selection over time. We estimate the characteristics of the unobserved heterogeneity and determine the correlation between the unobserved components of default and prepayment. The paper demonstrates the need to estimate initial household choices and the durations to default or prepayment jointly.

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URN: urn:nbn:se:umu:diva-112106DOI: 10.1111/1540-6229.12113.OAI: diva2:875835
Available from: 2015-12-02 Created: 2015-12-02 Last updated: 2016-05-27

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