Liquidity Constraints, Home Equity and Residential Mortgage Losses

Do, HX; Rösch, D; Scheule, H

Liquidity Constraints, Home Equity and Residential Mortgage Losses

Do, HX Rösch, D Scheule, H

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Publisher:: Springer Verlag
Publication Type:: Journal Article
Citation:: Journal of Real Estate Finance and Economics, 2020, 61, (2), pp. 208-246
Issue Date:: 2020

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Field	Value	Language
dc.contributor.author	Do, HX
dc.contributor.author	Rösch, D
dc.contributor.author	Scheule, H
dc.date.accessioned	2020-10-03T23:15:01Z
dc.date.available	2020-10-03T23:15:01Z
dc.date.issued	2020
dc.identifier.citation	Journal of Real Estate Finance and Economics, 2020, 61, (2), pp. 208-246
dc.identifier.issn	0895-5638
dc.identifier.issn	1573-045X
dc.identifier.uri	http://hdl.handle.net/10453/143059
dc.description.abstract	© 2019, Springer Science+Business Media, LLC, part of Springer Nature. 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.
dc.language	English
dc.publisher	Springer Verlag
dc.relation.ispartof	Journal of Real Estate Finance and Economics
dc.relation.isbasedon	10.1007/s11146-019-09709-9
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1402 Applied Economics, 1502 Banking, Finance and Investment, 1504 Commercial Services
dc.subject.classification	Finance
dc.title	Liquidity Constraints, Home Equity and Residential Mortgage Losses
dc.type	Journal Article
utslib.citation.volume	61
utslib.for	1402 Applied Economics
utslib.for	1502 Banking, Finance and Investment
utslib.for	1504 Commercial Services
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney
utslib.copyright.status	closed_access	*
pubs.consider-herdc	true
dc.date.updated	2020-10-03T23:14:57Z
pubs.issue	2
pubs.publication-status	Published
pubs.volume	61
utslib.citation.issue	2

Abstract:

© 2019, Springer Science+Business Media, LLC, part of Springer Nature. 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.

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http://hdl.handle.net/10453/143059