Estimating Loan-to-value Distributions

Arthur Korteweg, Morten Sørensen

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We estimate a model of house prices, combined loan-to-value ratios (CLTVs) and trade and foreclosure behavior. House prices are only observed for traded properties and trades are endogenous, creating sample-selection problems for existing approaches to estimating CLTVs. We use a Bayesian filtering procedure to recover the price path for individual properties and produce selection-corrected estimates of historical CLTV distributions. Estimating our model with transactions of residential properties in Alameda, California, we find that 35% of single-family homes are underwater, compared to 19% estimated by existing approaches. Our results reduce the index revision problem and have applications for pricing mortgage-backed securities.
We estimate a model of house prices, combined loan-to-value ratios (CLTVs) and trade and foreclosure behavior. House prices are only observed for traded properties and trades are endogenous, creating sample-selection problems for existing approaches to estimating CLTVs. We use a Bayesian filtering procedure to recover the price path for individual properties and produce selection-corrected estimates of historical CLTV distributions. Estimating our model with transactions of residential properties in Alameda, California, we find that 35% of single-family homes are underwater, compared to 19% estimated by existing approaches. Our results reduce the index revision problem and have applications for pricing mortgage-backed securities.
LanguageEnglish
JournalReal Estate Economics
Volume44
Issue number1
Pages41-86
ISSN1080-8620
DOIs
StatePublished - 2016

Cite this

Korteweg, Arthur ; Sørensen, Morten. / Estimating Loan-to-value Distributions. In: Real Estate Economics. 2016 ; Vol. 44, No. 1. pp. 41-86
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Estimating Loan-to-value Distributions. / Korteweg, Arthur; Sørensen, Morten.

In: Real Estate Economics, Vol. 44, No. 1, 2016, p. 41-86.

Research output: Contribution to journalJournal articleResearchpeer-review

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AU - Korteweg,Arthur

AU - Sørensen,Morten

PY - 2016

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AB - We estimate a model of house prices, combined loan-to-value ratios (CLTVs) and trade and foreclosure behavior. House prices are only observed for traded properties and trades are endogenous, creating sample-selection problems for existing approaches to estimating CLTVs. We use a Bayesian filtering procedure to recover the price path for individual properties and produce selection-corrected estimates of historical CLTV distributions. Estimating our model with transactions of residential properties in Alameda, California, we find that 35% of single-family homes are underwater, compared to 19% estimated by existing approaches. Our results reduce the index revision problem and have applications for pricing mortgage-backed securities.

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JO - Real Estate Economics

T2 - Real Estate Economics

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