A model of mortgage default

• Autores: John Y. Campbell, Joao F. Cocco
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 70, Nº 4, 2015, págs. 1495-1554
• Idioma: inglés
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• Dialnet Métricas: 2 Citas
• Resumen

  • In this paper, we solve a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation, and interest rate risk. Using a zero-profit condition for mortgage lenders, we solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quantifies the effects of adjustable versus fixed mortgage rates, loan-to-value ratios, and mortgage affordability measures on mortgage premia and default. Mortgage selection by heterogeneous borrowers helps explain the higher default rates on adjustable-rate mortgages during the recent U.S. housing downturn, and the variation in mortgage premia with the level of interest rates