Subprime Housing Loans - Case Study Example

Summary

Housing loans have been tapped by private borrowers for many years. However, the meltdown of the subprime housing loan market has raised questions on the proper financing and planning and affordability of homes. Foreclosures have been rising, especially among subprime borrowers…

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Subject: Business
Type: Case Study
Level: Masters
Pages: 4 (1000 words)
Downloads: 2
Author: kristianmetz

Extract of sample "Subprime Housing Loans"

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The data sources will come from six sets of data. The aim of the data is to construct a set of borrower characteristics, loan characteristics, property characteristics, lender characteristics and macroeconomic variables. The first data series is the Home Mortgage Disclosure Act (HMDA) data from 2000 to 2007. The aim is to obtain individual loan level data (such as whether a loan is being accepted or rejected, loan amount, income, race and gender of the borrower, etc). The HMDA data is also used to derive measures of lender characteristics, the Herfindahl-Hirschmann Index of the Census tract and whether the lender is a bank.

The second data set is the Department of Housing and Urban Development's (HUD) list of lenders that specialize in the subprime market to code each loan as being subprime or not. The thirda data set is the U.S. Census data to derive Census tract level demographic, property and borrower characteristics. The Census data is matched to HMDA by state, county and Census tract number. The fourth data set is from a major credit bureau for tract median FICO score (MEDFICO) and debt-to-income ratio (DTI), which are widely accepted borrower risk variables used by mortgage bankers and brokers in their lending decision.

The credit bureau data is also matched to HMDA data by state, county and Census tract number. . The first data series is the Home Mortgage Disclosure Act (HMDA) data from 2000 to 2007. The aim is to obtain individual loan level data (such as whether a loan isbeing accepted or rejected, loan amount, income, race and gender of the borrower, etc). The HMDA data is also used to derive measures of lender characteristics, the Herfindahl-Hirschmann Index of the Census tract and whether the lender is a bank.

The credit bureau data is also matched to HMDA data by state, county and Census tract number. Fifth, I match the House Price Index (HPI) data from the Office Federal Housing Enterprise Oversight (OFHEO) to HMDA data by year and Metropolitan Statistical Area (MSA). This data is used to construct neighborhood house price appreciation rate, which is used to calculate the loan-to-value ratio (LTV). The sixth data set is the macroeconomic data from the Federal Reserve Bank of San Francisco to control for macroeconomic risk.

The methodology to be used is the single equation Probit regression.

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