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Title: Price premium and foreclosure risk
Authors: NEO POH HAR
Keywords: Foreclosure, premium, negative equity, pricing, fair value, risk
Issue Date: 3-Mar-2005
Citation: NEO POH HAR (2005-03-03). Price premium and foreclosure risk. ScholarBank@NUS Repository.
Abstract: The implicit assumption made in most foreclosure studies is that foreclosed properties are purchased at fair value. This paper questions this assumption given extant research on the price premium paid by first-time, out-of-state and out-of-country buyers. This is further compounded by the observation that mortgage appraisals are often equal to the purchase price, and consequently, properties purchased at a premium are likely to have higher default trigger points. Drawing on work from the takeover literature, this paper postulates that premium paid at the point of purchase could affect the likelihood of subsequent foreclosure. Using a comprehensive database from Singapore, we document the existence of a price premium for properties that were eventually foreclosed relative to those that were not. In addition, the empirical evidence supports our hypothesis that price premium is a significant determinant leading to a higher incidence of foreclosure. This result is robust to differing model specifications and measurement of price premium.
Appears in Collections:Master's Theses (Open)

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