Discontinuity in Relative Credit Losses: Evidence from Defaults on Government-Insured Residential Mortgages

Agata Lozinskaia (), Evgeniy Ozhegov and Alexandr Karminsky
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Agata Lozinskaia: National Research University Higher School of Economics
Authors registered in the RePEc Author Service: Agatha M. Poroshina

HSE Working papers from National Research University Higher School of Economics

Abstract: This paper investigates the distribution of relative credit losses given mortgage default for loans provided by a major government-sponsored creditor in a local area. We use borrower’s individual and loan-level data on residential mortgages originated in the period 2008–2012. Our numerical analysis indicates that mortgages bunching at certain Loan-to-Value ratios (LTV) led to a discontinuity in relative credit loss given mortgage default. Through regression analysis, we demonstrate discrete jumps in the approximated historical credit losses generated by loans with a high LTV ratios and find thresholds allowing the segmentation of loans according their credit risk. In addition, our results suggest that mortgage insurance is a potentially valuable instrument for compensation for expected loss in certain risk segments.

Keywords: discontinuity; credit risk; mortgage default; government mortgage lending programs; loss evaluation. (search for similar items in EconPapers)
JEL-codes: C21 G21 G32 R20 R58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2016
New Economics Papers: this item is included in nep-ias, nep-rmg, nep-upt and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in WP BRP Series: Financial Economics / FE, July 2016, pages - 24

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:55/fe/2016

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