Working Paper

REGIME SHIFT AND THE POST-CRISIS WORLD OF MORTGAGE LOSS SEVERITIES

Abstract: The average loss rate for conventional mortgages rose from less than 10% pre-crisis to more than 30% during the crisis, reaching and sustaining greater than 40% post-crisis. Using a novel database that contains the components of mortgage losses, we identify a regime shift in loss severities caused by various government interventions and changes in business practices in the servicing industry. This regime shift helps explain the persistently high loss severities post-crisis, even after a strong recovery in the housing market. Our findings have implications for loss modeling, pricing, and, potentially, mortgage credit availability.

Keywords: mortgages; housing markets; government intervention;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2017-04-19

Number: 17-8

Pages: 46 pages