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Determinants and consequences of mortgage default

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  • Yuliya Demyanyk
  • Ralph S.J. Koijen
  • Otto Van Hemert

Abstract

We study a unique data set of borrower-level credit information from TransUnion, one of the three major credit bureaus, which is linked to a database containing detailed information on the borrowers’ mortgages. We find that the updated credit score is an important predictor of mortgage default in addition to the credit score at origination. However, the 6-month change in the credit score also predicts default: A positive change in the credit score significantly reduces the probability of delinquency or foreclosure. Next, we analyze the consequences of default on a borrower’s credit score. The credit score drops on average 51 points when a borrower becomes 30-days delinquent on his mortgage, but the effect is much more muted for transitions to more severe delinquency states and even foreclosure.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1019.

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Date of creation: 2010
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Handle: RePEc:fip:fedcwp:1019

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Related research

Keywords: Mortgage loans ; Credit scoring systems ; Foreclosure;

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Cited by:
  1. John Y. Campbell & João F. Cocco, 2011. "A Model of Mortgage Default," NBER Working Papers 17516, National Bureau of Economic Research, Inc.
  2. Daniel Rösch & Harald Scheule, 2011. "Securitization rating performance and agency incentives," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 287-314 Bank for International Settlements.
  3. Luigi Guiso & Paolo Sodini, 2012. "Household Finance. An Emerging Field," EIEF Working Papers Series 1204, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2012.

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