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REGIME SHIFT AND THE POST-CRISIS WORLD OF MORTGAGE LOSS SEVERITIES

Xudong An and Lawrence R. Cordell
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Xudong An: Federal Reserve Bank of Philadelphia
Lawrence R. Cordell: Federal Reserve Bank of Philadelphia

No 17-8, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The average loss rate for conventional mortgages rose from less than 10% pre-crisis to more than 30% during the crisis, reaching and sustaining greater than 40% post-crisis. Using a novel database that contains the components of mortgage losses, we identify a regime shift in loss severities caused by various government interventions and changes in business practices in the servicing industry. This regime shift helps explain the persistently high loss severities post-crisis, even after a strong recovery in the housing market. Our findings have implications for loss modeling, pricing, and, potentially, mortgage credit availability.

Keywords: mortgages; housing market; government intervention (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2017-04-19
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