Journal ArticleDOI
Strategic Defaults on First and Second Lien Mortgagesduring the Financial Crisis
Julapa Jagtiani,William W. Lang +1 more
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TLDR
In this article, the authors explore the strategic factors that may affect borrower decisions to default on first vs. second lien mortgages and find that borrowers are more likely to remain current on their second liens if it is a home equity line of credit (HELOC) rather than a closed-end home equity loan.Abstract:
Strategic default behavior suggests that the default process is not only a matter of the inability to pay. Economic costs and benefits affect the incidence and timing of defaults. As with prior research, this article finds that people default strategically as their home value falls below the mortgage value (exercise the put option to default on their first mortgage). While some of these homeowners default on both first mortgages and second lien home equity lines, a large portion of the delinquent borrowers have kept their second lien current during the recent financial crisis. These second liens, which are current but stand behind a seriously delinquent first mortgage, are subject to a high risk of default. However, relatively few borrowers default on their second liens while remaining current on their first. This article explores the strategic factors that may affect borrower decisions to default on first vs. second lien mortgages. This study finds that borrowers are more likely to remain current on their second lien if it is a home equity line of credit (HELOC) rather than a closed-end home equity loan. Moreover, the size of the unused line of credit is an important factor. Interestingly, we find evidence that the various mortgage loss mitigation programs also play a role in providing incentives for homeowners to default on their first mortgages.read more
Citations
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Journal ArticleDOI
The Changing Pecking Order of Consumer Defaults
TL;DR: This article examined the extent to which nonprime mortgage borrowers prioritize payments on their monthly mortgage over credit card debt obligations over a 9-year period (2001-09) and found that consumers were eight times more likely to prioritize payments of mortgage debt over credit-card debt obligations.
ReportDOI
A New Look at Second Liens
TL;DR: In this paper, the authors use data from credit reports and deed records to better understand the extent to which second liens contributed to the housing crisis by allowing buyers to purchase homes with small down-payments.
Journal ArticleDOI
Mortgage Default during the U.S. Mortgage Crisis
TL;DR: In this article, a structural partial-equilibrium model with liquidity constraints and idiosyncratic unemployment shocks is presented to provide micro-foundations for the double-trigger hypothesis, which explains most of the observed strong rise in mortgage default rates.
Journal ArticleDOI
Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays
TL;DR: The authors examined how factors affecting mortgage default spill over to other credit markets and highlighted the interconnectedness of debt repayment decisions, showing that larger unused credit card limits intensify the preservation of credit cards over housing debt.
Journal ArticleDOI
How to estimate expected credit losses – ECL – for provisioning under IFRS 9
TL;DR: In this article, a two-step methodology is proposed to estimate credit impairment allowances compliant with the IFRS 9 framework, which is applied to calculate impairment provisioning for a sample of investment grade and high yield obligors.
References
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Journal ArticleDOI
The Rise in Mortgage Defaults
TL;DR: The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly as mentioned in this paper, and by the third quarter of 2008, the share of seriously delinquent mortgages had surged to 5.2%.
Journal ArticleDOI
Mortgage terminations, heterogeneity and the exercise of mortgage options
TL;DR: In this article, the authors present a unified model of the competing risks of mortgage termination by prepayment and default, considering the two hazards as dependent competing risks which are estimated jointly.
Journal ArticleDOI
Negative equity and foreclosure: Theory and evidence
TL;DR: This article developed a simple theoretical model to interpret these empirical findings and to assess potential foreclosure-reduction policies, which implies that lenders and policymakers face an information problem in trying to help borrowers with negative equity, because it is hard to determine which owners really need help in order to stay in their homes.
Journal ArticleDOI
What 'Triggers' Mortgage Default?
Ronel Elul,Nicholas S. Souleles,Nicholas S. Souleles,Souphala Chomsisengphet,Dennis Glennon,Robert M. Hunt +5 more
TL;DR: The authors assesses the relative importance of two key drivers of mortgage default: negative equity and illiquidity, with comparably sized marginal effects, and find that negative equity is significantly associated with mortgage default.
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