Liquidity problems and early payment default among subprime mortgages

Nathan Anderson and Jane K. Dokko

No 2011-09, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The lack of property tax escrow accounts among subprime mortgages causes borrowers to make large lump-sum tax payments that reduce liquidity. Different property tax collection dates across states and counties create exogenous variation in the time between loan origination and the first property tax due date, affording the opportunity to estimate the causal effect of loan-level exposure to liquidity reductions on mortgage default. We find that a nine-month delay in owing property taxes reduces the probability of first-year default by about 4 percent, or about one-third of the effect of a reduction in equity from 10 percent to negative 20 percent.

Keywords: Subprime mortgage; Default (Finance); Property tax (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban and nep-ure
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Liquidity Problems and Early Payment Default among Subprime Mortgages (2016)
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