Guarantees and collaterals value in NPLs

The burst of the subprime mortgage crisis affected on a large scale the Italian real estate industry. The Italian real estate market underwent and is still undergoing a severe stagnancy due to the credit crunch worsened by the banking system and the resulting lack of liquidity. In financing real estate property investments, security packages play an extremely important role and guarantees have become a major tool for risk management and financial innovation in order to facilitate credit enhancement and hedging of risks. In this context the evaluation of guarantees and collaterals becomes extremely important. A robust measure of the value of collaterals is more than a key issue in times of financial crisis, when the value of the guarantees is questioned. Aim of this paper is to investigate, on a sample of 89 foreclosures, whether the collaterals were overestimated and the mortgage lending value represents a robust measure of the mortgage underlying guarantee.