Mortgage Loan Characteristics, Unobserved Heterogeneity and the Performance of United Kingdom Securitised Sub-Prime Loans

Gauthier Lanot and David Leece ()
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David Leece: Keele Management School, Postal: Keele University, United Kingdom

No 876, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: The research estimates a competing risk model of mortgage terminations on samples of UK securitised subprime mortgages. Given the argued role of these types of loan in the recent financial crisis then it is important to better understand their performance and supposed idiosyncratic behaviour. The methodological and empirical advance is the use of a general, flexible modelling of unobserved heterogeneity over several dimensions, controlling for both selection issues involving initial mortgage choices and dynamic selection over time. Moreover, we estimate specific coefficients for this unobserved heterogeneity and determine the correlation between the unobserved components of default and prepayment. The paper demonstrates the need for researchers and practitioners to jointly estimate household choices whiles controlling for selectivity through unobserved heterogeneity.

Keywords: Subprime mortgages; unobserved heterogeneity; household behaviour; loan performance (search for similar items in EconPapers)
JEL-codes: C13 C25 C51 D10 D14 E44 G21 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2014-02-20
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-mac and nep-ure
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Mortgage Loan Characteristics, Unobserved Heterogeneity and the Performance of United Kingdom Securitized Subprime Loans (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0876

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