@article {Goodman48, author = {Laurie S. Goodman and Jun Zhu}, title = {Loss Severity on Residential Mortgages: Evidence from Freddie Mac{\textquoteright}s Newest Data }, volume = {25}, number = {2}, pages = {48--57}, year = {2015}, doi = {10.3905/jfi.2015.25.2.048}, publisher = {Institutional Investor Journals Umbrella}, abstract = {In this article, we analyze new loan-level data recently released by Freddie Mac on more than 17 million single-family mortgages to reveal a range of new and useful insights into the ultimate financial losses associated with a loan after it experiences a credit event. We conclude that mortgage insurance significantly lowers loss severities. We show that actual loss severities are higher than the preset severity schedule for loans with a loan-to-value (LTV) ratio of 60{\textendash}80, relatively accurate for higher-LTV loans. We also find that small loans have higher severity than larger loans, that real-estate-owned (REO) sales have higher severity than short sales, and that there is no stable relationship between the state of origination and severity. Finally, we review the components of loss{\textemdash}liquidation value, direct expenses, and lost interest{\textemdash}and find that direct expenses and loss interest contribute significantly to the ultimate loss.TOPICS: MBS and residential mortgage loans, credit risk management}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/25/2/48}, eprint = {https://jfi.pm-research.com/content/25/2/48.full.pdf}, journal = {The Journal of Fixed Income} }