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The Determinants of Mortgage Defaults in Australia – Evidence for the Double-trigger Hypothesis

Michelle Bergmann
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Michelle Bergmann: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: I explore the determinants of mortgage defaults in Australia. Specifically, I use a novel two-stage hazard model to examine evidence for the 'double-trigger' hypothesis – that defaults require both an inability to repay the loan and the loan to be in negative equity. My results are broadly consistent with the double-trigger hypothesis. Ability-to-pay factors, such as regional unemployment rates and borrowers' repayment-to-income ratios, are found to be correlated with loans entering arrears. Transitions from arrears to foreclosure, on the other hand, are more closely linked to the extent of negative equity.

Keywords: mortgage; mortgage default; foreclosure; loan-level data (search for similar items in EconPapers)
JEL-codes: D11 D12 G21 G51 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ure
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Handle: RePEc:rba:rbardp:rdp2020-03