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Geographic Disaggregation of House Price Stress Paths: Implications for Single-Family Credit Risk Measurement

Author

Listed:
  • Alexander N. Bogin

    (Federal Housing Finance Agency)

  • LaRhonda Ealey

    (Federal Housing Finance Agency)

  • Kirsten Landeryou

    (Federal Housing Finance Agency)

  • Scott Smith

    (Federal Housing Finance Agency)

  • Andrew Tsai

    (Federal Housing Finance Agency)

Abstract

We explore the impact of geographic disaggregation of house price stress paths on single-family credit risk measurement. Specifically, we focus on the value added of moving from national, to state-level, to core-based statistical area (CBSA)-level house price paths on estimates of mortgage credit related stress losses. To ensure the robustness of our results, we estimate losses across two different loan portfolios and three credit models. We find that CBSA-level paths provide additional insight on localized credit risk and can be reliably constructed using quarterly house price indices. Further, the variation in results across credit models suggests an implicit confidence interval around any one stress loss estimate. Accounting for this uncertainty through a model risk add-on could potentially offer a more conservative view of portfolio credit risk.

Suggested Citation

  • Alexander N. Bogin & LaRhonda Ealey & Kirsten Landeryou & Scott Smith & Andrew Tsai, 2023. "Geographic Disaggregation of House Price Stress Paths: Implications for Single-Family Credit Risk Measurement," FHFA Staff Working Papers 23-02, Federal Housing Finance Agency.
    • Handle: RePEc:hfa:wpaper:23-02
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    geographic aggregation; credit modeling; countercyclical;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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