Epidemiological spreading of mortgage default

Jochen Schweikert and Markus Höchstötter

International Journal of Housing Markets and Analysis, 2018, vol. 12, issue 1, 74-93

Abstract: Purpose - This paper aims to introduce mathematical models to capture the spreading of epidemics to explain the expansion of mortgage default events in the USA. Design/methodology/approach - The authors use the state of infectiousness and death to represent the subsequent steps of payment elinquency and default, respectively. As the local economic structure influences regional unemployment, which is a strong driver of mortgage default, the authors model interdependencies of regional mortgage default rates through employment conditions and vicinity. Findings - Based on a large sample between 2000 and 2014 of loan-level data, the estimation of key parameters of the model is proposed. The model’s forecast accuracy shows an above-average performance compared to well-known approaches such as linear regression or logit models. Originality/value - The key findings may be useful in understanding the dynamics of mortgage defaults and its spatial spreading.

Keywords: Big data; R30 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijhmap:ijhma-05-2017-0047

DOI: 10.1108/IJHMA-05-2017-0047

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