We incorporate house price risk and mortgages into a standard incomplete market (SIM) model. We calibrate the model to match U.S. data and we show that the model also ac- counts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of home...

This paper examines the impact of interest-rate and down-payment subsidies on default rates and losses given default, and finds that down-payment subsidies create successful homeowners at a lower cost than interest-rate subsidies.

Mortgage lenders impose a default premium on the loans they originate to compensate for the possibility that borrowers won’t make payments. The housing boom of the 2000s was characterized by increasing riskiness of the borrowers approved for mortgages and the structures of the loans...

By the end of 2009, one out of every 11 mortgages was seriously delinquent or in foreclosure. Economists have devoted considerable energy over the past several years to understanding the underlying causes of this increase in defaults. One goal is to provide a guide to dealing with the existing...

Strategic default behavior suggests that the default process is not only a matter of inability to pay. Economic costs and benefits affect the incidence and timing of defaults. As with prior research, the authors find that people default strategically as their home value falls below the mortgage...

We study optimal exercise by mortgage borrowers of the option to default. Also, we use an equilibrium valuation model incorporating default to show how mortgage yields and lender recovery rates on defaulted mortgages depend on initial loan-to-value ratios when borrowers default optimally. The...

During the last global recession, house prices fell in some European countries almost as much as in some U.S. states. However, mortgage defaults occurred at a much lower rate in Europe. The authors say the difference might be explained by two regulations that apply in Europe but are used on a...

Surprisingly little is known about the importance of mortgage payment size for default, as efforts to measure the treatment effect of rate increases or loan modifications are confounded by borrower selection. We study a sample of hybrid adjustable-rate mortgages that have experienced large rate...

This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged - thus loosening debtors' budget constraints. Homeowners in financial...

The lack of property tax escrow accounts among subprime mortgages causes borrowers to make large lump-sum tax payments that reduce liquidity. Different property tax collection dates across states and counties create exogenous variation in the time between loan origination and the first property...