Underwater mortgages

John Krainer and Stephen LeRoy

FRBSF Economic Letter, 2010, issue oct18

Abstract: House prices have fallen approximately 30% from their peak in 2006, accompanied by a level of defaults and foreclosures without precedent in the post-World War II era. Many homeowners have mortgages with principal amounts higher than the market value of their properties. In general, though, the rational default point is below the \\"underwater\\" point where house price equals the remaining loan balance, and depends on prospects for future house price appreciation and borrower default costs.

Keywords: Housing - Prices; Housing - Finance; Mortgages (search for similar items in EconPapers)
Date: 2010
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