Sunk Costs and Mortgage Default

Richard Green (), Eric Rosenblatt and Vincent Yao

No 9097, Working Paper from USC Lusk Center for Real Estate

Abstract: In this paper, we estimate default hazard functions that include standard variables along with borrowers sunk cost: i.e., down payment at loan origination. After testing large numbers of specifications, we find that after controlling for mark-to-market loan-to-value, initial combined loan to value remains an important predictor of default. We also find, contrary to Guiso, Sapienze and Zingales (2009), that there is not a specific point at which one observes a discontinuous default probability, but that it is rather that default is smooth in mark-to-market LTV.

Keywords: Sunk Cost; Downpayment; Home Equity; Competing Risk Model; Hazard Model (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:luk:wpaper:9097

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