Economics at your fingertips  

Equity Extraction and Mortgage Default

Steven Laufer ()

Review of Economic Dynamics, 2018, vol. 28, 1-33

Abstract: Using a property-level data set of houses in Los Angeles County, I estimate that about 15% of the recent surge in mortgage defaults is attributable to early cohorts of homebuyers who would not have defaulted had they not borrowed against the rising value of their homes during the boom. I develop and estimate a structural model capable of explaining the patterns of both equity extraction and default observed among this group of homeowners. In the model, households who have taken out equity have both higher loan-to-value ratios and increased mortgage payments relative to their income, a combination that makes them more likely to default. Using this model to analyze a policy that limits the maximum size of cash-out refinances to 80% of the current house value, I find that this restriction would reduce defaults by 18%, partially by inducing households to purchase less expensive homes. (Copyright: Elsevier)

Keywords: Mortgages; Equity extraction; Mortgage default (search for similar items in EconPapers)
JEL-codes: D14 G21 G33 E20 R2 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (15) Track citations by RSS feed

Downloads: (external link)
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See for details.

Related works:
Software Item: Code and data files for "Equity Extraction and Mortgage Default" (2017) Downloads
Working Paper: Equity Extraction and Mortgage Default (2014) Downloads
Working Paper: Equity extraction and mortgage default (2013) 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:

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

Access Statistics for this article

Review of Economic Dynamics is currently edited by Jonathan Heathcote and Vincenzo Quadrini

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

Page updated 2018-09-13
Handle: RePEc:red:issued:15-201