Modeling Spatially Interdependent Mortgage Decisions

Modeling Spatially Interdependent Mortgage Decisions House price regression residuals often display spatial dependence but historically mortgage models, which employ house prices, assume independence and use only the own borrower/loan characteristics. This manuscript uses a spatial probit model to investigate spatial dependence among the disturbances and the effect of borrower/loan characteristics from nearby properties on own default propensity. We find that allowing spatial dependence in the disturbances greatly improve the predictive accuracy of a probit default model, and that spillovers from risky neighbor characteristics have statistically significant and material effects on own payment default propensity. In addition, measurement of spatial effects can improve policy analysis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Modeling Spatially Interdependent Mortgage Decisions

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Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Regional/Spatial Science; Finance/Investment/Banking
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-013-9419-y
Publisher site
See Article on Publisher Site

Abstract

House price regression residuals often display spatial dependence but historically mortgage models, which employ house prices, assume independence and use only the own borrower/loan characteristics. This manuscript uses a spatial probit model to investigate spatial dependence among the disturbances and the effect of borrower/loan characteristics from nearby properties on own default propensity. We find that allowing spatial dependence in the disturbances greatly improve the predictive accuracy of a probit default model, and that spillovers from risky neighbor characteristics have statistically significant and material effects on own payment default propensity. In addition, measurement of spatial effects can improve policy analysis.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Apr 20, 2013

References

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