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

Dartmouth College - Tuck School of Business

Multiple version iconThere are 2 versions of this paper

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

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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