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A Model of Mortgage Default
- Source :
- Quick submit: 2016-05-12T11:59:58-0400, CAMPBELL, JOHN Y., and JOÃO F. COCCO. 2015. “A Model of Mortgage Default.” The Journal of Finance 70 (4) (July 23): 1495–1554. doi:10.1111/jofi.12252.
- Publication Year :
- 2015
- Publisher :
- Wiley-Blackwell, 2015.
-
Abstract
- In this paper, we solve a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation, and interest rate risk. Using a zero-profit condition for mortgage lenders, we solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quantifies the effects of adjustable versus fixed mortgage rates, loan-to-value ratios, and mortgage affordability measures on mortgage premia and default. Mortgage selection by heterogeneous borrowers helps explain the higher default rates on adjustable-rate mortgages during the recent U.S. housing downturn, and the variation in mortgage premia with the level of interest rates.<br />Economics
Details
- Language :
- English
- ISSN :
- 00221082
- Database :
- Digital Access to Scholarship at Harvard (DASH)
- Journal :
- Quick submit: 2016-05-12T11:59:58-0400, CAMPBELL, JOHN Y., and JOÃO F. COCCO. 2015. “A Model of Mortgage Default.” The Journal of Finance 70 (4) (July 23): 1495–1554. doi:10.1111/jofi.12252.
- Publication Type :
- Academic Journal
- Accession number :
- edshld.1.30758219
- Document Type :
- Journal Article
- Full Text :
- https://doi.org/10.1111/jofi.12252