Premium
Mortgage Loan Characteristics, Unobserved Heterogeneity and the Performance of United Kingdom Securitized Subprime Loans
Author(s) -
Lanot Gauthier,
Leece David
Publication year - 2015
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12113
Subject(s) - prepayment of loan , mortgage underwriting , economics , securitization , loan , econometrics , selection (genetic algorithm) , actuarial science , finance , mortgage insurance , computer science , casualty insurance , insurance policy , artificial intelligence
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.