Estimating Loan‐To‐Value Distributions

46 Pages Posted: 20 Jan 2016

See all articles by Arthur G. Korteweg

Arthur G. Korteweg

University of Southern California - Marshall School of Business

Morten Sorensen

Copenhagen Business School; Columbia Business School; Centre for Economic Policy Research (CEPR)

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Date Written: Spring 2016


We estimate a model of house prices, combined loan‐to‐value ratios (CLTVs) and trade and foreclosure behavior. House prices are only observed for traded properties and trades are endogenous, creating sample‐selection problems for existing approaches to estimating CLTVs. We use a Bayesian filtering procedure to recover the price path for individual properties and produce selection‐corrected estimates of historical CLTV distributions. Estimating our model with transactions of residential properties in Alameda, California, we find that 35% of single‐family homes are underwater, compared to 19% estimated by existing approaches. Our results reduce the index revision problem and have applications for pricing mortgage‐backed securities.

Suggested Citation

Korteweg, Arthur G. and Sørensen, Morten, Estimating Loan‐To‐Value Distributions (Spring 2016). Real Estate Economics, Vol. 44, Issue 1, pp. 41-86, 2016. Available at SSRN: or

Arthur G. Korteweg (Contact Author)

University of Southern California - Marshall School of Business ( email )

3670 Trousdale Parkway
Los Angeles, CA 90089
United States


Morten Sørensen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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