IMF links historical house prices to default loss
An IMF paper published in July finds a link between house price cycles before mortgage origination and loss given default, a parameter used in risk models. The paper breaks away from existing literature which argues that the current loan-to-value ratio is the most important determinant of loss given default.
Yanan Zhang, Lu Ji, and Fei Liu, the paper's authors, use a subprime residential mortgage loss dataset from 1998 to 2009 to establish a new linkage between the house price cycles before the
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