“Skin in the Game”: Zero Downpayment Mortgage Default

Austin Kelly

Journal of Housing Research, 2008, vol. 17, issue 2, 75-99

Abstract: This paper extends the analysis of mortgage default to include mortgages that require no downpayment from the purchaser. The results indicate that borrowers who provide even modest downpayments from their own resources have substantially lower default propensities than do borrowers whose downpayments come from relatives, government agencies, or nonprofits. Borrowers with downpayments from seller-funded nonprofits, who make no downpayment at all, have the highest default rates. Eliminating FHA’s 3% downpayment causes default to rise far beyond the simple effect of a 3% change in equity.

Date: 2008
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DOI: 10.1080/10835547.2008.12091991

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