Mortgage Default during the U.S. Mortgage Crisis

Journal of Money, Credit and Banking, 2018, vol. 50, issue 6, 1101-1137

Abstract: Which theory can quantitatively explain the rise in mortgage defaults during the U.S. mortgage crisis? This paper finds that the double‐trigger hypothesis, which attributes mortgage default to the joint occurrence of negative equity and a life event such as unemployment, is consistent with the evidence. By contrast, a traditional frictionless default model strongly overpredicts the increase in default rates. This paper provides microfoundations for double‐trigger behavior in a model where unemployment causes liquidity problems for the borrower. This framework implies that mortgage crises may be mitigated at a lower cost by bailing out borrowers instead of lenders.

Date: 2018
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Citations: View citations in EconPapers (16)

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https://doi.org/10.1111/jmcb.12546

Related works:
Working Paper: Mortgage Default during the U.S. Mortgage Crisis (2014)
Working Paper: Mortgage Default during the U.S. Mortgage Crisis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:50:y:2018:i:6:p:1101-1137

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