Yongheng Deng

• PhD Economics, UC Berkeley
• National University of Singapore

Using a representative sample of credit card holders from a leading Chinese commercial bank, we investigate how consumers respond to an unexpected interest rate decrease that automatically reduces interest expenses for all mortgage borrowers in the country and thereby generates significant positive disposable-income shocks. Our difference-in-differ...

The speculative nature of both stock and housing markets in China has attracted the attention of observers. However, while stock market data are easily available, the low frequency and low quality of publicly available housing price data hampers the study of the relationship between the two markets. We use original hedonic weekly resale housing pri...

We test for the differences in information asymmetry across two organizational forms (external and internal) in the REIT industry. We find significant differences with external REITs being significantly more transparent relative to internal REITs, and these differences are reflected in the loan contract terms and loan syndicate structure of loans m...

The speculative nature of both stock and housing markets in China has attracted the attention of observers. However, while stock market data are easily available, the low frequency and low quality of publicly available housing price data hampers the study of the relationship between the two markets. We use original hedonic weekly resale housing pri...

Based on the quarterly actual rental income of over 9,000 NCREIF commercial properties during 2001Q2-2010Q2, we construct a commercial real estate rental index using a dynamic panel data model. The rental index we construct captures the market-wide fluctuations in rental income, and our model estimates show that market-wide rent growth is mean-reve...

In a similar way to the stock market, the housing market in China has often been portrayed as highly speculative, giving rise to “bubble” concerns. Over the last decade, residential prices increased every year on average by double digits in Beijing or Shanghai. However many observers and researchers argue that fundamentals of the housing sector, bo...

This paper examines whether the 2011 Fukushima Nuclear Accident (FNA) changed the Chinese public's attitude toward nuclear energy by studying transactions in land markets near nuclear power plants in China. Using a data set that matched the details of all nuclear reactors in China with information on land transactions around them before and after t...

In general, investment grade bonds do not offer covenant protection. However, in the case of Real Estate Investment Trusts (REITs), investment grade REITs tend to include a covenant package that outlines limits on leverage and requires maintaining certain fixed charges and interest coverage ratios. This unique debt financing structure of REITs offe...

Real estate is an important driver of the Chinese economy, which itself is vital for global growth. However, data limitations make it challenging to evaluate competing claims about the state of Chinese housing markets. This paper brings new data and analysis to the study of supply and demand conditions in nearly three dozen major cities. We first d...

Using the actual quarterly rental income generated in the years between 2001 and 2010 by over 9,000 NCREIF commercial properties, we construct a commercial real estate rental index and estimate the time series properties (e.g., mean-reversion speed and volatility) of market-wide rental growth using a dynamic panel data model. The dynamic panel data...

We test for the differences in information asymmetry across two organizational forms (external and internal) in the REIT industry. We find significant differences with external REITs being significantly more transparent relative to internal REITs, and these differences are reflected in the loan contract terms and loan syndicate structure of loans m...

We provide an innovative measure of information flow in Chinese housing markets based on search records from the Internet search engine Google. The measure depicts a substantial flow of house-price related information from national “superstar” cities, such as Beijing and Shanghai, and regional “star” cities, such as Tianjin and Chongqing, to other...

We provide new evidence of systematic variation in mortgage default option exercise. For a given level of negative equity, borrower propensity to default rose markedly during the financial crisis and in hard-hit metropolitan areas. Analysis of time-series and panel data indicates the importance of local economic risk, consumer sentiment, and federa...

Subordination is designed to provide credit risk protection for senior CMBS tranches by allocating the initial credit losses to the more junior tranches. Subordination level should in theory reflect the underlying credit risk of the CMBS pool. In this paper, we test the hypothesis that subordination is purely about credit risk as intended. We find...

Most existing house price index construction methods are developed mainly based on transaction data from the secondary housing market, and are not necessarily suitable for the nascent housing markets where a predominant portion of housing transactions are new units. Using the booming market in China as an example, we evaluate and compare the perfor...

China’s monetary stimulation after the global financial crisis rapidly boosted its GDP. We argue that its efficacy derives from state control over its banking and corporate sectors. Beijing ordered state-owned banks to lend and they lent. Beijing ordered centrally-controlled state-owned enterprises (SOEs) to invest and they invested. Our data show...

In generating fast economic growth, China is also generating growing concern about its environmental record. Using 2000-2009 data, we find that, while spending on environmental infrastructure has visible positive environmental impact, city spending is strongly tilted towards transportation infrastructure. Investment in transportation infrastructure...

The recent financial crisis has led to calls for a better understanding of the reasons behind the increase in mortgage defaults and the foreclosures that followed. Previous studies using option-based mortgage default models predicted that borrowers should immediately exercise the default option when the market value of their mortgage exceeds the va...

We expand on the standard commercial mortgage default model and create a new model by looking beyond the usual factors of option value, insolvency, property type, region, originator type, state foreclosure laws and macroeconomic measures. The new model incorporates measures of local economic conditions, specifically MSA-level commercial property ma...

This paper studies a largely overlooked and important segment of the mortgage market in explaining the recent financial crisis—the condominium loan market, which experienced a 15-fold increase in origination and constituted 15% of the overall residential loan originations from 2001 to 2007. Condominium loan defaults grow at a faster rate than singl...

For many Asian countries facing rapid urbanization and land scarcity problems, providing large-scale affordable housing for urban poor is a challenging task. Singapore has turned itself against the odds since independence by transforming itself from a nation of home seeker to home owner. As in 2011, public housing constitutes 82.65 % of the total h...

Previous research on the United States and Japan finds economically large impacts of changing real estate collateral value on firm investment. Working with unique data on land values in 35 major Chinese markets and a panel of firms outside the real estate industry, we estimate investment equations that yield no evidence of a collateral channel effe...

We use a matching procedure to construct three commercial real estate indices (office, shop and multiple-user factory) in Singapore using transaction sales from 1995Q1 to 2010Q4. The matching approach is less restrictive than the repeat sales estimator, which is restricted to properties sold at least twice during the sample period. The matching app...

We test for differences in information asymmetry across two organizational forms in the REIT industry. We find significant differences with external REITs being significantly more transparent relative to internal REITs, and these differences are reflected in the loan contract terms and loan syndicate structure of loans made to these two types of RE...

We provide the first multi-city, constant quality land price index for 35 major markets in China. While there is meaningful heterogeneity in land price growth across cities, on average the last nine years have seen land values skyrocket in many markets, not just those on or near the coast. The typical market has experienced double-digit compound av...

In recent years, formal certification programs for rating and evaluating the sustainability and energy efficiency of buildings have proliferated around the world. Developers recognize that such “green labels” differentiate products and allow them to charge a price premium. China has not formally adopted such rating standards. In the absence of such...

Since the loan limit of a reverse mortgage is a major concern for the borrower as well as the lender, this paper attempts to develop an option-based model to evaluate the loan limits of reverse mortgages. Our model can identify several crucial determinants for reverse mortgage loan limits, such as initial housing price, expected housing price growt...

This study recognizes that commercial mortgage default is not a one-step process and examines a previously under explored aspect in the whole default process, that is the stage between the initial delinquency and default. We distinguish the servicers’ behavior from the borrowers’ behavior. A multinomial logit model is applied to analyze the service...

In the wake of recent pronounced cycles in housing, substantial media and professional debate have focused on house price determination, and in particular, optimal seller pricing strategies. In this paper, we adopt a multistage search model, in which the home seller’s reservation price is determined by her opportunity cost, search cost, discount ra...

Large racial differences in home ownership have been a source of considerable concern among policymakers because homeownership choice may influence wealth accumulation, labor market outcomes, and even children's educational outcomes. Racial differences in ownership rates may be affected by discrimination (Kain and Quigley, 1972), and extensive...

According to the advocates of a "Generalized Darwinism" (GD), the three core Darwinian principles of variation, selection and retention (or inheritance) can be used as a general framework for the development of theories explaining evolutionary processes in the socio­economic domain. Even though these are originally biological terms, GD argues that...

We use a matching procedure to construct samples of private residential sales in Singapore for January 1995 to May 2010. Though the matching approach is similar to a repeat sales estimator in pairing each sale with the sale of a comparable property, sample sizes are much larger because the matched properties are not constrained to be identical in e...

We use different organizational forms of REITs (internally-advised versus externally-advised) as a natural experiment to devise a clean test of the impact of hold up versus benefits in relationship banking. Due to regulatory reasons, externally advised REITs have lower information opacity and consequently are less subject to hold up effect. Contrar...

Since January of 2005, 250 building projects in the City of Singapore have been awarded the Green Mark for energy efficiency and sustainability. This paper analyzes the private returns to these investments, evaluating the premium in asset values they command in the market. We analyse almost 37,000 transactions in the Singapore housing market to est...

In the recent financial crisis, macroeconomic stimuli produced mixed results across developed economies. In contrast, China's stimulus boosted real GDP growth from an annualized 6.2% in the first quarter of 2009 trough to 11.9% in the first quarter of 2010. Amidst this phenomenal response, land auction and house prices in major cities soared. We ar...

Returns for commercial real estate are determined by the interaction between the market for space or “space market ” and the market for capital or “capital market.” In the space market, tenants lease space and short run rental rates are determined by the supply and demand for space. Discount and capitalization (cap) rates for rental

Property market dynamics depend on changes in long run equilibrium and on impediments to adjustment towards equilibrium. Mortgage termination due to mobility, default and refinancing provides a lens for evaluating property market adjustments. The borrower’s decision to move as an adjustment mechanism in the property market is associated with utilit...

We study the potential model instability problem with respect to mortgage default risk and examine to what extent it helps explain the default shock during the recent crisis. We find that econometric default risk models based on historical data can be unstable over time. Due to temporal shifts in the parameters, default prediction of the 2006 vinta...

We find substantial regional variations in CMBS loan default rates based on a 10-year history of nearly 38,000 CMBS loans. We seek to explain those variations with well documented risk factors such as negative equity, insolvency, property type, originator and state foreclosure law, as well as some newly introduced factors such as local unemployment...

High and rising prices in Chinese housing markets have attracted global attention, as well as the interest of the Chinese government and its regulators. Housing markets look very risky based on the stylized facts we document. Price-to-rent ratios in Beijing and seven other large markets across the country have increased from 30% to 70% since the be...

We demonstrate that asymmetric information between sellers (loan originators) and purchasers (investors and securities issuers) of commercial mortgages gives rise to a standard lemons problem, whereby portfolio lenders use private information to liquidate lower quality loans in commercial mortgage-backed securities (CMBS) markets. Conduit lenders,...

We demonstrate that asymmetric information between sellers (loan originators) and buyers (investors and securities issuers) of commercial mortgages gives rise to a standard “lemons problem”, whereby portfolio lenders use private information to liquidate lower quality loans in CMBS markets. Conduit lenders, who originate loans for direct sale into s...

This study examines the return patterns of hotel real estate stocks in the U.S. during the period from 1990 to 2007.We find that the magnitude and persistence of future mean returns of hotel real estate stocks can be predicted based on past returns, past earnings surprise, trading volume, firm size, and holding period. The empirical evidence found...

We examine the dynamics in correlations and volatility of REITs, stock and direct real estate returns using the monthly data from Jan 1987 to May 2008. To explore asymmetries in conditional correlation, the multivariate asymmetric dynamic diagonal conditional correlation (AD‐DCC) GARCH specification is utilized in this paper. We document that the t...

We demonstrate that asymmetric information between sellers (loan originators) and purchasers (investors and securities issuers) of commercial mortgages gives rise to a standard lemons problem, whereby portfolio lenders use private information to liquidate lower quality loans in commercial mortgage-backed securities (CMBS) markets. Conduit lenders,...

We evaluate the effects of CDO issuance on the pricing of subprime residential mortgage-backed securities. Upon controlling for mortgage option values and other well-established determinants of credit spreads, GMM results indicate that the emergence and rapid capitalization of the subprime-backed CDO market was associated with a significant tighten...

The construction of the higher stories in a building is utterly contingent upon the construction of the lower ones, while the construction of lower stories does not require the construction of the higher ones. This rationale underlies our adoption of a cooperative game theory methodology for examining the value of units based on the cost approach o...

The evolution of the mortgage markets in ChinaAn early assessment of China's residential mortgage loans performanceNotesReferences

It is widely recognized that options and futures markets for housing can reduce and manage the risks inherent in consumers’ large investments in housing equity. The integrity of such markets depends, however, upon the use of transparent and replicable benchmarks for house prices and settlement values. In the USA, a series of state and metropolita...

REIT is an important but complex financial innovation. The next decade is likely to see the emergence and fast development of REITs market in China. The development of a sound legal and regulatory infrastructure is a critical first step. Obviously, the lessons in the 48 years development of the U.S. REITs market provide a great reference for the la...

Despite recent volatility and constraints in secondary market funding, analysts have ascribed substantial value creation to the securitization of commercial mortgages. Such value creation likely emanates from liquidity enhancements, regulatory arbitrage, price discrimination and risk diversification by pooling and tranching, gains from specializati...

Most condominiums in China are sold forward on a pre-sale market, where purchasers and developers transact on an underlying property that is not yet completed. During the pre-sale period home buyers face a significant forward contract risk. However, home buyers can borrow mortgages from banks so that they can effectively share the forward contract...

It is widely recognized that options and futures markets for housing can reduce and manage the risks inherent in consumers' large investments in housing equity. The integrity of such markets depends, however, upon the use of transparent and replicable benchmarks for house prices and settlement values. In the U.S., a series of state and metropolitan...

Over the course of recent decades, conduit lending has emerged as an important completing element of the real estate capital markets. Indeed, conduit loans rose to 75% of CMBS issuance in 1998, from less than 5% of CMBS issuance in 1992. However, despite the rapid growth of the conduit market, few papers have sought to model the market completing e...

Mortgage terminations arise because borrowers exercise options. This paper investigates the non-optimal and apparently irrational behavior of those borrowers who do not terminate their mortgages even when the exercise value of the option is deeply in the money. We develop an option-based empirical model to analyze this phenomenon --the behavior of...

Empirical evidence shows that the value of units in a building generally rises with their floor level due to features such as the better view and lesser noise experienced in higher stories. We adopt a theoretical approach for examining the value of units in different floors based on the allocation of land and construction cost among the stories of...

In this paper, we focus on the cross sectional differences in subordination levels among different CMBS deals. We ask two empirical questions: 1) what determines subordination levels? 2) whether CMBS bonds (or tranches) with greater levels of subordination do, in fact, experience higher levels of delinquencies and default. We perform both a deal le...

Recent years have witnessed ongoing research and policy debate regarding the effects on lower-income and underserved housing markets of the affordable housing goals set by government-sponsored enterprises (GSEs). While the GSEs were established to provide liquidity to mortgage markets and to mitigate severe cyclical fluctuations in housing, those e...

Option theory predicts that mortgage default or prepayment will be exercised if the call or put option is “in the money.” We extend our analysis to commercial mortgages using data from commercial mortgage-backed securities (CMBS). The paper presents a model of the competing risks of mortgage termination (default and prepayment) using data from comm...

We analyze the insurance premium structure of reverse mortgage loans in Korea. Our analyses provide a comparison between the reverse mortgage loans structured with constant monthly payments to those structured with graduated monthly payments which are indexed to the growth rate of consumer prices. Using the total annual loan cost measure, we find t...

This study examines the impact of rent control of mobile home parks in seven counties of California between 1983 and 2003. We assembled an extensive and timely data set and, thus, were able to test more carefully specified econometric models than had been employed in prior studies of California mobile home rent control. We find that the nature of t...

We analyze an actuarial model of reverse mortgage programs in Korea. Our analyses provide a comparison between the reverse mortgage loans structured with constant monthly payments to those with graduate monthly payments which are indexed to the growth rate of consumer prices. Using the total annual loan cost measure, we find that the graduate month...

Subordination levels are of critical importance in the classic senior-subordinated structure for securitized financing (such as collateralized debt obligations and commercial mortgage-backed securities). Subordination levels determine the amount of credit support that the senior bonds (or tranches) require from the subordinated bonds (or tranches)...

1 Contact information: (1) An, xudongan@usc.edu, 213-821-1351, 213-740-0373 (fax); (2) Bostic, bostic@usc.edu, 213-740-1220, 213-740-6170 (fax). The authors are grateful for helpful comments from, and participants at 2006 Annual AREUEA meetings in Boston and the 46 th ACSP annual conference in Kansas City. We thank the USC Lusk Center for Real Esta...

This article extends unobserved heterogeneity to the multinomial logit (MNL) model framework in the context of mortgages terminated by refinance, move or default. It tests for the importance of unobserved heterogeneity when borrower characteristics such as income, age and credit score are included to capture lender-observed heterogeneity. It does t...

This paper estimates an option-based hazard model of the competing risks of FHA mortgage termination. Results indicate that the elevated default risks of loans originated among lower credit-quality and minority borrowers are more than offset by the damped prepayment speeds of those loans, so as to result in markedly lower loan termination probabili...

Abstract Ithas been documented ,that rating agencies use loan-to-value ratio (LTV) and debt-service-coverage ,ratio (DSCR) as two ,key ,variables to determine ,CMBS subordination levels. However, recent research on commercial mortgage loan performance,suggests little statistically significant relationship exists between ,original LTV, DSCR and comm...

This study examines the impact of rent control of mobile home parks in seven counties of California between 1983 and 2003. We assembled an extensive and timely data set and, thus, were able to test more carefully specified econometric models than had been employed in prior studies of California mobile-home rent control. We find that the nature of t...

This article investigates the impact of spatially correlated unobservable variables on the refinancing, selling and default decisions of mortgage borrowers. Virtually the entire mortgage literature acknowledges that borrower-specific characteristics, such as culture, education or access to information, play an important role in mortgage termination...

The residential mortgage market becomes a financial engine for the booming residential housing development and sustained economic growth in China. Our study provides the first rigorous empirical analysis on the earlier performance of residential mortgage market in China based on a unique micro dataset of mortgage loan history collected from a major...

Option theory predicts that mortgage default or prepayment will be exercised if the call or put option is "in the money." We extend our analysis to commercial mortgages using data from commercial mortgage-backed securities. The paper presents a model of the competing risks of mortgage termination (default and prepayment) using data from commercial...

Mortgage termination can be caused by one of the competing risks such as refinance, move, or default. The majority of existing empirical papers model the competing risks of mortgage termination using either a logit framework or a proportional hazard framework. This paper proposes a comparative study of competing risks of mortgage terminations by re...

Mortgage terminations arise because borrowers exercise options. This paper investigates the apparently irrational behavior of those borrowers who do not terminate their mortgages even when the exercise value of the option is deeply in the money. We develop an option-based empirical model to analyze this phenomenon -- the behavior of irrational or b...

The rate of homeownership among African–American households is considerably lower than white households in American urban areas. This paper examines whether racial differences in residential location outcomes are among the factors that contribute to the large racial differences in homeownership rates in major US metropolitan areas. Based on the 198...

A proportional hazards model with competing risks is specified and is extended to correct for the possibility of originator bias. The model is used to examine the ability of option-theoretic models of mortgage pricing to forecast commercial mortgage defaults. Among the findings, those especially of interest include the influence of contemporaneous...

This paper estimates a proportional hazard model of duration of residence in rental housing over 1987-98 based on a unique dataset from the BLS-CPI housing sample together with American Housing Survey and other metropolitan economic data. The paper employs an innovative semi-parametric estimation approach for group duration analysis of the proporti...

This article examines the factors driving the borrower's decision to terminate commercial mortgage contracts with the lender through either prepayment or default. Using loan-level data, we estimate prepayment and default functions in a proportional hazard framework with competing risks, allowing us to account for unobserved heterogeneity. Under a s...

This paper provides a side-by-side comparison of loan-level statistical models for fixed- and adjustable-rate mortgages. Multinomial logit models for quarterly conditional probabilities of default and prepayment are estimated. We find that the estimated impacts of embedded option values for prepayment and default are generally quite similar across...

Implicit in option-pricing models of mortgage valuation are threshold levels of put-option value that must be crossed to induce borrower default. There has been little research into what these threshold values are that come out of pricing models or how they compare to exercised option values seen in empirical data. This study decomposes boundary co...

Option theory predicts that mortgage prepayment or default will be exercised by homeowners if the call or put option is sufficiently "in the money." This analysis: tests the extent to which the option approach explains default and prepayment behavior; evaluates the importance of modeling both options simultaneously; and models the unobserved hetero...

Pricing for mortgage and mortgage-backed securities is complicated due to the stochastic and interdependent nature of prepayment and default risks. This paper presents a unified economic model of the contingent claims and competing risks of mortgage termination by prepayment and default. I adopt a proportional hazard framework to analyze these comp...

This paper presents a unified model of the default and prepayment behavior of homeowners in a proportional hazard framework. The model uses the option-based approach to analyze default and prepayment and considers these two interdependent hazards as competing risks. The results indicate the sensitivity of default to the initial loan-to-value ratio...

Thesis (Ph. D. in Economics)--University of California, Berkeley, May 1995. Includes bibliographical references (leaves 55-59).

This paper investigates the impact of spatially correlated unobservable variables on the mortgage prepayment risks based on a geo-coded loan level mortgage data collected in the Los Angeles County. Virtually the entire mortgage literature acknowledges that borrower specific characteristics, such as culture, education, or access to information, play...

We find substantial regional variations in commercial mortgage default risk from an examination of over 40,000 CMBS mortgage loans. Default rates of CMBS loans in East South Central and West South Central are over 3 times higher than that of Mid-Atlantic, while the rate in Pacific region is only half of Mid-Atlantic. The regional effects persist ev...