Do, Hung Xuan and Roesch, Daniel and Scheule, Harald (2020) Liquidity Constraints, Home Equity and Residential Mortgage Losses. JOURNAL OF REAL ESTATE FINANCE AND ECONOMICS, 61 (2). pp. 208-246. ISSN 0895-5638, 1573-045X
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This paper analyses how mortgage borrower liquidity constraints and home equity drive the realized loss rates given default using loan-level data. We define defaulted loans with zero loss as cures and those with non-zero loss as non-cures. We find economically that borrower liquidity constraints and positive equity explain cure, while negative equity explains non-zero loss. The findings provide an important economic-rationale for a separation of the cure and loss processes in mortgage loss models and their applications such as loan pricing and bank capital regulation. The results have great relevance for the multi-trillion dollar mortgage industry for a more efficient capital allocation, better mortgage pricing and more forward-looking loan loss provisioning.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | COST-BENEFIT-ANALYSIS; NEGATIVE EQUITY; LOSS SEVERITIES; FORECLOSURE; DEFAULT; SELECTION; RISK; Cure; Loss Given Default; Liquidity Constraints; Home Equity; Mortgage; Resolution; Selection |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre > Lehrstuhl für Statistik und Risikomanagement (Prof. Dr. Rösch) |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 17 Mar 2021 12:09 |
| Last Modified: | 17 Mar 2021 12:09 |
| URI: | https://pred.uni-regensburg.de/id/eprint/44131 |
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