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Mortgage Loan Characteristics, Unobserved Heterogeneity and the Performance of United Kingdom Securitized Subprime Loans

Author

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  • Gauthier Lanot
  • David Leece
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.
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Suggested Citation

  • Gauthier Lanot & David Leece, 2016. "Mortgage Loan Characteristics, Unobserved Heterogeneity and the Performance of United Kingdom Securitized Subprime Loans," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 44(4), pages 771-813, October.
    • Handle: RePEc:bla:reesec:v:44:y:2016:i:4:p:771-813
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    File URL: http://hdl.handle.net/10.1111/reec.2016.44.issue-4
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    Citations

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    Cited by:

    1. Lazarov, Vladimir & Hinterschweiger, Marc, 2018. "Determinants of distress in the UK owner-occupier and buy-to-let mortgage markets," Bank of England working papers 760, Bank of England.
    2. Alla Koblyakova & Michael White, 2017. "Supply driven mortgage choice," Urban Studies, Urban Studies Journal Limited, vol. 54(5), pages 1194-1210, April.
    3. McCann, Fergal, 2014. "Modelling default transitions in the UK mortgage market," Research Technical Papers 18/RT/14, Central Bank of Ireland.
    4. Andrew Linn & Ronan C. Lyons, 2020. "Three Triggers? Negative Equity, Income Shocks and Institutions as Determinants of Mortgage Default," The Journal of Real Estate Finance and Economics, Springer, vol. 61(4), pages 549-575, November.
    5. Andrew Linn & Ronan C Lyons, 2018. "The Triple Trigger? Negative Equity, Income Shocks and Institutions as Determinants of Mortgage Default," Trinity Economics Papers tep0718, Trinity College Dublin, Department of Economics.

    More about this item

    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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