Papers by Anthony Pennington-cross
Journal of Economics and Business, 2008
The lag between the time that a borrower stops making payments on a mortgage and the termination ... more The lag between the time that a borrower stops making payments on a mortgage and the termination of the loan plays a critical role in the costs borne by both borrower and lender on defaulted loans. While the prior literature uses a multinomial logit approach, statistical tests indicate that we cannot accept the associated assumption of Independence of Irrelevant Alternatives (IIA). Using a nested logit specification our results suggest that the recipe for delinquency involves young loans to low credit score borrowers with low or no documentation in housing markets with moderately volatile and flat or declining nominal house prices. We would like to thank the Federal Reserve Bank of St. Louis for leasing the data set that made this paper possible. In addition, the research was largely completed while Anthony Pennington-Cross was affiliated with the Federal Reserve Bank of St. Louis. Therefore, 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, and the Board of Governors or any other author affiliation. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission or of the author's colleagues upon the staff of the Commission.
This paper examines the implications of delinquency on the performance of subprime mortgages. Spe... more This paper examines the implications of delinquency on the performance of subprime mortgages. Specifically, we examine whether delinquency has any predictive power of the future performance of a mortgage. Using a sample of subprime mortgages from the Loanperformance database on securitized private-label pool collateral, we utilize a two-step estimation procedure to control for the endogeneity of delinquency in an estimation of default and prepayment probabilities. We find strong support for the "distressed prepayment" theory that very delinquent loans are more likely to prepay than to default and that the rate of increase of prepayment is substantially larger as delinquency intensity increases. Delinquency predominately leads to termination of a loan through prepayment while negative equity leads to termination through default.
Housing Policy Debate, 2011
SSRN Electronic Journal, 2005
The measurement of house prices poses significant conceptual and practical problems, mainly becau... more The measurement of house prices poses significant conceptual and practical problems, mainly because dwellings are heterogeneous assets whose prices can only be observed when they are sold. There are now seven main house price indices for the United Kingdom. In broad terms, each measures one of three different concepts: the value of a representative set of house transactions; the price of a house with "typical" characteristics; the value of the housing stock. The indices are constructed from different data using different methods. Consequently, the available measures of house prices can give conflicting or misleading signals about house price inflation. The data and methods used to construct the indices can vary in three key respects: the point in the house purchase process at which the price is measured; the techniques used to adjust for differences in the characteristics of houses; and the weighting scheme used. Indices that measure the price earlier in the purchase process are able to detect price changes first, but will measure final prices with error because prices can be renegotiated extensively before the deal is finalised. This is not necessarily a disadvantage, because it is useful to have a measure of prices at each stage of the purchasing process and those indices measuring prices earlier in the purchase process may lead other indices. Quality adjustment aids interpretation of price changes, and can have significant effects on measured house price inflation. A variety of methods and specifications are used, each with advantages and disadvantages. The choice of weighting scheme allows the index to measure different concepts of house prices and movements in price for different sets of dwellings. Again, a variety of methods are used. All the available indices have advantages and disadvantages so it is important to look at a wide range of indicators and examine the reasons for the differences between them. Observers and policymakers must always be careful to match the measure of house prices they use with the concept they are interested in, and to ensure that the information in short-run changes in house price inflation is not over-interpreted, because sampling and estimation error in monthly and quarterly house price inflation rates appears to be substantial.
Journal of Real Estate Research
Journal of Housing Research, 2022
This paper links the probabilities of default and prepayments to the distribution of losses assoc... more This paper links the probabilities of default and prepayments to the distribution of losses associated with a synthetic portfolio of Fannie Mae and Freddie Mac mortgages randomly samples from 30-year fixed rate prime and subprime mortgages. The simulations exploit historical relationships found between mortgage characteristics and economic conditions in time and space as estimated in a competing risk conditional default and prepayment hazard model and a loss given default model.
The Regional Economist, 2006
... [back to text]; "Growth Without Growth: An Alternative Economic Development Goal for Met... more ... [back to text]; "Growth Without Growth: An Alternative Economic Development Goal for Metropolitan Areas," by Paul Gottlieb, February 2002. ... Chart: Average rate on 30-year, fixed-rate mortgage declines to 3.88, Freddie Mac reports http://t.co/6CcK7peX about 2 days ago. ...
SSRN Electronic Journal, 2008
... and payments to change over time), hybrid loans (loans that have a fixed interest rate for a ... more ... and payments to change over time), hybrid loans (loans that have a fixed interest rate for a short time period then become adjustable), interest only loans (loans that allow only the interest to be ... Typically, steep yield curves are associated with rising short term ...
Default rates on mortgage loans are driven by a number of factors, including but not limited to t... more Default rates on mortgage loans are driven by a number of factors, including but not limited to the following: 1. Income to mortgage payment ratio 2. Credit behavior and attitudes toward paying obligations as reflected in credit scores 3. Loss of a job or unexpected medical expense 4. Available liquid assets that may be tapped for mortgage payments 5. Perceived and/or actual equity in the home as reflected in current values While all of the above are important, the last factor seems to dominate all the others. Home equity is a function of current market value and the loan-to-value (LTV) ratio of the original mortgage, along with any other debt added during ownership, such as second mortgages and home equity lines of credit, (HELOC). Here we focus on this last factor, home equity
The Regional Economist, Apr 1, 2005
Bis Papers Chapters, 2005
Regional Science and Urban Economics, 2000
This paper presents a cross-sectional analysis of the spatial distribution of loans in the primar... more This paper presents a cross-sectional analysis of the spatial distribution of loans in the primary and secondary mortgage markets. Aggregating loan originations to the MSA level, we examine the proportion of the market served by FHA and conventional lenders. We model the geographic differences in market shares as a function of supply, demand, and economic risk factors. Results indicate that FHA market shares are higher in cities with higher economic risk characteristics. To examine the role of GSE activity, we model the spatial distribution of the disposition of conventional loans. Again, we focus on the impact of local economic risk factors on the proportion of loans purchased by the GSEs, purchased by other financial institutions, or retained by the originating lender. Our results indicate that GSEs purchase rates are fairly insensitive to local economic conditions indicating that they serve the primary market with little spatial variation.
SSRN Electronic Journal, 2006
After a mortgage is originated the borrower promises to make scheduled payments to repay the loan... more After a mortgage is originated the borrower promises to make scheduled payments to repay the loan. These payments are sent to the loan servicer, who may be the original lender or some other firm. This firm collects the promised payments and distributes the cash flow (payments) to the appropriate investor/lender. A large data set (loan-level) of securitized subprime mortgages is used to examine if individual servicers are associated with systematic differences in mortgage performance (termination). While accounting for unobserved heterogeneity in a competing risk (default and prepay) proportional hazard framework, individual servicers are associated with substantial and economically meaningful impacts on loan termination.
Regional Science and Urban Economics, 2000
This paper presents a cross-sectional analysis of the spatial distribution of loans in the primar... more This paper presents a cross-sectional analysis of the spatial distribution of loans in the primary and secondary mortgage markets. Aggregating loan originations to the MSA level, we examine the proportion of the market served by FHA and conventional lenders. We model the geographic differences in market shares as a function of supply, demand, and economic risk factors. Results indicate that FHA market shares are higher in cities with higher economic risk characteristics. To examine the role of GSE activity, we model the spatial distribution of the disposition of conventional loans. Again, we focus on the impact of local economic risk factors on the proportion of loans purchased by the GSEs, purchased by other financial institutions, or retained by the originating lender. Our results indicate that GSEs purchase rates are fairly insensitive to local economic conditions indicating that they serve the primary market with little spatial variation.
Uploads
Papers by Anthony Pennington-cross