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Determinants and consequences of mortgage default

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Abstract

We study a unique data set of borrower-level credit information from TransUnion, one of the three major credit bureaus, which is linked to a database containing detailed information on the borrowers? mortgages. We find that the updated credit score is an important predictor of mortgage default in addition to the credit score at origination. However, the 6-month change in the credit score also predicts default: A positive change in the credit score significantly reduces the probability of delinquency or foreclosure. Next, we analyze the consequences of default on a borrower?s credit score. The credit score drops on average 51 points when a borrower becomes 30-days delinquent on his mortgage, but the effect is much more muted for transitions to more severe delinquency states and even foreclosure.

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  • Yuliya Demyanyk & Ralph S. J. Koijen & Otto van Hemert, 2010. "Determinants and consequences of mortgage default," Working Papers (Old Series) 1019, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1019
    DOI: 10.26509/frbc-wp-201019
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    Cited by:

    1. Daniel Rösch & Harald Scheule, 2011. "Securitization rating performance and agency incentives," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 287-314, Bank for International Settlements.
    2. John Y. Campbell & João F. Cocco, 2015. "A Model of Mortgage Default," Journal of Finance, American Finance Association, vol. 70(4), pages 1495-1554, August.
    3. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    4. Stanga, Irina & Vlahu, Razvan & de Haan, Jakob, 2020. "Mortgage arrears, regulation and institutions: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 118(C).
    5. Stanga, Irina & Vlahu, Razvan & de Haan, Jakob, 2020. "Mortgage arrears, regulation and institutions: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 118(C).
    6. Lenarčič, Črt, 2022. "Drivers of household arrears: an euro area country panel data analysis," MPRA Paper 114558, University Library of Munich, Germany.

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