Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Philadelphia
Working Papers
What "triggers" mortgage default?
Ronel Elul
Nicholas S. Souleles
Souphala Chomsisengphet
Dennis
Glennon
Robert M. Hunt
Abstract

This paper assesses the relative importance of two key drivers of mortgage default: negative equity and illiquidity. To do so, the authors combine loan-level mortgage data with detailed credit bureau information about the borrower's broader balance sheet. This gives them a direct way to measure illiquid borrowers: those with high credit card utilization rates. The authors find that both negative equity and illiquidity are significantly associated with mortgage default, with comparably sized marginal effects. Moreover, these two factors interact with each other: The effect of illiquidity on default generally increases with high combined loan-to-value ratios (CLTV), though it is significant even for low CLTV. County-level unemployment shocks are also associated with higher default risk (though less so than high utilization) and strongly interact with CLTV. In addition, having a second mortgage implies significantly higher default risk, particularly for borrowers who have a first-mortgage LTV approaching 100 percent.


Download Full text
Cite this item
Ronel Elul & Nicholas S. Souleles & Souphala Chomsisengphet & Dennis & Glennon & Robert M. Hunt, What "triggers" mortgage default?, Federal Reserve Bank of Philadelphia, Working Papers 10-13, 2010.
More from this series
JEL Classification:
Subject headings:
Keywords: Mortgages ; Default (Finance)
For corrections, contact Beth Paul ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal