57 Pages Posted: 19 Jun 2013 Last revised: 3 May 2014
Date Written: April 10, 2014
This study develops estimates of expected loss severities on mortgage exposures using data from Florida during the Great Recession. This paper marks the first attempt at addressing sample selectivity in the context of loss models. We also construct measures of home equity that are more accurate than those employed in previous studies. We find that failing to address sample selection and the use of noisy equity measures in loss models can bias loss estimates significantly. We also find significantly higher loss severities and a greater sensitivity of loss severity to equity than what previous studies report.
Keywords: LGD, Loss Severity, Credit Risk, Basel II, Mortgages, Home Equity, Sample Selection
JEL Classification: G21, G12, D12, D14
Suggested Citation: Suggested Citation
Andersson, Fredrik and Mayock, Tom, Loss Severities on Residential Real Estate Debt during the Great Recession (April 10, 2014). Available at SSRN: https://ssrn.com/abstract=2280888 or http://dx.doi.org/10.2139/ssrn.2280888