Epidemiological spreading of mortgage default

Jochen Schweikert and Markus Höchstötter

No 112, Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Management

Abstract: This paper introduces mathematical models to capture the spreading of epidemics to explain the expansion of mortgage default events in the United States. Here we use the state of infectiousness and death to represent the subsequent steps of payment delinquency and default, respectively. Since the local economic structure influences regional unemployment that is a strong driver of mortgage default, we model interdependencies of regional mortgage default rates through employment conditions as well as vicinity. Based on a large sample between 2000 and 2014 of loan-level data, the estimation of key parameters of the model is proposed. The model's forecast accuracy shows an above average performance compared to well-known approaches like linear regression or logit models. The key findings may be useful in understanding the dynamics of mortgage defaults and its spatial spreading.

Keywords: Mortgage default; Epidemics; Spatial spreading (search for similar items in EconPapers)
JEL-codes: R30 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kitwps:112

DOI: 10.5445/IR/1000079883

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