EconPapers    
Economics at your fingertips  
 

Mortgage defaults

Juan Hatchondo, Leonardo Martinez and Juan Sanchez

Journal of Monetary Economics, 2015, vol. 76, issue C, 173-190

Abstract: A life-cycle model is developed in which households face income and house-price risk and buy houses with mortgages. This model, which accounts for key features in U.S. data, is used as a laboratory for prudential policy. Recourse mortgages increase the cost of default but also lower equity and increase payments. The effect on default is nonmonotonic. Loan-to-value (LTV) limits increase equity and lower the default rate, with negligible effects on housing demand. Combining recourse mortgages and LTV limits reduces the default rate while boosting housing demand. Together, they also prevent spikes in default after large declines in aggregate house prices.

Keywords: Mortgage; Default; Recourse; LTV; Housing risk (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393215001191
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Mortgage Defaults (2015) Downloads
Working Paper: Mortgage Defaults (2012) Downloads
Working Paper: Mortgage defaults (2011) Downloads
Working Paper: Mortgage defaults (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:76:y:2015:i:c:p:173-190

DOI: 10.1016/j.jmoneco.2015.09.011

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-31
Handle: RePEc:eee:moneco:v:76:y:2015:i:c:p:173-190