Underwater mortgages and mortgage default risk in a recourse market
Underwater mortgages and mortgage default risk in a recourse market
Underwater mortgages and mortgage default risk in a recourse market
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Literature<br />
Real Estate Literature on <strong>mortgage</strong> <strong>default</strong><br />
- Enormous literature on probability on <strong>mortgage</strong> <strong>default</strong> <strong>in</strong> US<br />
(decision to foreclosure)<br />
- “Double triggers” theory: <strong>default</strong> occurs when 2 th<strong>in</strong>gs happen<br />
1 the borrower has negative equity<br />
(house (execution) value - <strong>mortgage</strong> debt + sav<strong>in</strong>gs)<br />
2 suffers an adverse life event (unemployment, divorce)<br />
- US research (2008)<br />
◮ Negative equity is a necessary condition for foreclosure, not a<br />
sufficient one.<br />
◮ Only 6% of home-owners hav<strong>in</strong>g estimated negative equity actually<br />
lost their homes to foreclosure.<br />
Schilder & Francke (UvA/ASRE/Ortec) <strong>Underwater</strong> <strong><strong>mortgage</strong>s</strong>/<strong>mortgage</strong> <strong>default</strong> <strong>risk</strong> ERES 2012 10 / 36