The Duration of Foreclosures in the Subprime Mortgage Market: A Competing Risks Model with Mixing
- 438 Downloads
This paper examines what happens to mortgages in the subprime mortgage market once foreclosure proceeding are initiated. A multinomial logit model that allows for the interdependence of the possible outcomes or risks (cure, partial cure, paid off, and real estate owned) through the correlation of associated unobserved heterogeneities is estimated. The results show that the duration of foreclosures is impacted by many factors including contemporaneous housing market conditions, the prior performance of the loan (prior delinquency), and the state-level legal environment.
KeywordsMortgages Subprime Foreclosure
JEL ClassificationD12 G12 G21 C25
This research was started while the author was affiliated with the Federal Reserve Bank of St. Louis and the views expressed in this research are those of the individual author and do not necessarily reflect the official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors.
- Ambrose, B., & Capone, C. (1996). Do lenders discriminate in processing defaults. Cityscape, 2(1), 89–98.Google Scholar
- Clauretie, T. M., & Sirmans, G. S. (2006). Real estate finance: Theory and practice, (5th ed., p. 287). Mason: Thomson South-Western Publishing.Google Scholar
- Dong, X., & Koppelman, F. S. (2003). Comparison of methods representing heterogeneity in logit models. Presented at the 10th International Conference on Travel Behaviour Research, Lucerne, 10–15 August 2003.Google Scholar
- McFadden, D. (1978). Modeling the choice of residential location. In A. Karlquist et al (Ed.), Spatial interaction theory and residential location (pp. 75–96). Amsterdam: North-Holland.Google Scholar
- Pence, K. M. (2003). Foreclosing on opportunity: State laws and mortgage credit. Board of Governors of the Federal Reserve System (U.S.), Finance and Economics Discussion Series: 2003-16.Google Scholar
- Pennington-Cross, A. (2006). The value of foreclosed property. Journal of Real Estate Research, 28(2), 193–214.Google Scholar
- Phillips, R., & Rosenblatt, E. (1997). The legal environment and the choice of default resolution alternatives: An empirical analysis. Journal of Real Estate Research, 13(2), 145–154.Google Scholar
- Train, K. (2003). Discrete choice methods with simulation. Cambridge: Cambridge University Press.Google Scholar
- Yu, X. (2006). Competing risk analysis of Japan’s small financial institutions. Stanford University, Department of Economics Working Paper.Google Scholar