A model of mortgage default : [Version Februar 2014]
- This paper solves a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation, and interest rate risk. It uses a zero-profit condition for mortgage lenders to solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quantifies the effects of adjustable vs. fixed mortgage rates, loan-to-value ratios, and mortgage affordability measures on mortgage premia and default. Heterogeneity in borrowers' labor income risk is important for explaining the higher default rates on adjustable-rate mortgages during the recent US housing downturn, and the variation in mortgage premia with the level of interest rates.
Author: | John Y. Campbell, João F. Cocco |
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URN: | urn:nbn:de:hebis:30:3-333206 |
Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 452 |
Series (Serial Number): | CFS working paper series (452) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2014 |
Year of first Publication: | 2014 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2014/03/21 |
Tag: | Household finance; Loan to income ratio; Loan to value ratio; Mortgage affordability; Mortgage premia; Negative home equity |
Issue: | Version Febr. 2014 |
First Page: | 1 |
Note: | This version: February 2014 ; First draft: November 2010 |
HeBIS-PPN: | 349979227 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |