Mortgage Default during the U.S. Mortgage Crisis

Thomas Schelkle ()

No 72, Working Paper Series in Economics from University of Cologne, Department of Economics

Abstract: Which of the main competing theories of mortgage default can quantitatively explain the rise in default rates during the U.S. mortgage crisis? This paper finds that the double-trigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment is consistent with the evidence. In contrast a traditional frictionless default model predicts a too strong increase in default rates. The paper also provides micro-foundations for double-trigger behavior in a model where unemployment may cause liquidity problems for the borrower. Using this framework for policy analysis reveals that a mortgage crisis may be mitigated at a lower cost by relieving the liquidity problems of borrowers instead of bailing out lenders.

Keywords: Mortgage default; mortgage crisis; house prices; negative equity (search for similar items in EconPapers)
JEL-codes: D11 E21 G21 (search for similar items in EconPapers)
Date: 2014-05-16
New Economics Papers: this item is included in nep-ban, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://ockenfels.uni-koeln.de/fileadmin/wiso_fak/ ... _download/wp0072.pdf (application/pdf)

Related works:
Journal Article: Mortgage Default during the U.S. Mortgage Crisis (2018)
Working Paper: Mortgage Default during the U.S. Mortgage Crisis (2012)
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:kls:series:0072

Access Statistics for this paper

More papers in Working Paper Series in Economics from University of Cologne, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Kiryl Khalmetski ( this e-mail address is bad, please contact ).