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Mortgage Defaults

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Author Info

  • Leonardo Martinez
  • Juan Carlos Hatchondo
  • Juan M. Sanchez

Abstract

This paper incorporates house price risk and mortgages into a standard incomplete market (SIM) model. The model is calibrated to match U.S. data and accounts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of home ownership, and the mortgage default rate. The average coefficients that measure the agents'' ability to self-insure against income shocks are similar to those of a SIM model without housing but housing increases the values of these coefficients for younger agents. The response of consumption to house price shocks is minimal. The introduction of minimum down payments or income garnishment benefits a majority of the population.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/26.

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Length: 33
Date of creation: 01 Jan 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/26

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Related research

Keywords: Bankruptcy; Economic models; Housing prices; mortgage; home ownership; mortgages; payments; debt; defaults; home equity; foreclosure; mortgage default; interest; mortgage defaults; loans; home owner; mortgage contracts; debtors; housing supply; refinance; mortgage loans; mortgage payment; home owners; debt contracts; residential mortgage; foreclosures; obligations; consumer credit; interest rate risk; default risk; mortgage credit; mortgage contract; mortgage payments; credit risk; debt forgiveness; debt level; mortgage debtors; personal bankruptcy; homeownership; mortgage interest; restructuring; mortgage holder; mortgage market; bankruptcy legislation; mortgage bankers; mortgage interest rate; mortgage credit risk; bankruptcy reform; default rates; housing affordability; mortgage debt; tax reforms; creditors; repudiation; sovereign debt; mortgage markets; mortgage default risk; mortgage choice; foreclosure laws; debts;

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References

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  1. Bulent Guler, 2010. "Innovations in Information Technology and the Mortgage Market," 2010 Meeting Papers 856, Society for Economic Dynamics.
  2. Kartik Athreya, 2004. "Fresh start or head start? Uniform bankruptcy exemptions and welfare," Working Paper 03-03, Federal Reserve Bank of Richmond.
  3. John Y. Campbell & Joao F. Cocco, 2003. "Household Risk Management And Optimal Mortgage Choice," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1449-1494, November.
  4. Karsten Jeske & Dirk Krueger & Kurt Mitman, 2011. "Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises," NBER Working Papers 17537, National Bureau of Economic Research, Inc.
  5. Greg Kaplan & Giovanni L. Violante, 2009. "How Much Consumption Insurance Beyond Self-Insurance?," NBER Working Papers 15553, National Bureau of Economic Research, Inc.
  6. Corradin, Stefano & Fillat, Jose L. & Vergara, Carles, 2012. "Optimal portfolio choice with predictability in house prices and transaction costs," IESE Research Papers D/948, IESE Business School.
  7. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
  8. Patrick Bolton & Olivier Jeanne, 2005. "Structuring and Restructuring Sovereign Debt: The Role of Seniority," NBER Working Papers 11071, National Bureau of Economic Research, Inc.
  9. Borys Grochulski, 2010. "Optimal Personal Bankruptcy Design under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 350-378, April.
  10. Mark Bils & Mark Aguiar, 2010. "Has Consumption Inequality Mirrored Income Inequality?," 2010 Meeting Papers 1334, Society for Economic Dynamics.
  11. Matthew Chambers & Carlos Garriga, 2005. "Accounting for Changes in the Homeownership Rate," Computing in Economics and Finance 2005 304, Society for Computational Economics.
  12. Andra C. Ghent & Marianna Kudlyak, 2011. "Recourse and Residential Mortgage Default: Evidence from US States 1," Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 3139-3186.
  13. Kurt Mitman, 2012. "Macroeconomic Effects of Bankruptcy and Foreclosure Policies," 2012 Meeting Papers 563, Society for Economic Dynamics.
  14. Christopher D. Carroll & Misuzu Otsuka & Jiri Slacalek, 2011. "How Large Are Housing and Financial Wealth Effects? A New Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 55-79, 02.
  15. Leonardo Martinez & Horacio Sapriza & Juan Carlos Hatchondo, 2010. "Quantitative Properties of Sovereign Default Models," IMF Working Papers 10/100, International Monetary Fund.
  16. Juan Carlos Hatchondo & Leonardo Martinez & Horacio Sapriza, 2010. "Online Appendix to "Quantitative properties of sovereign default models: solution methods"," Technical Appendices 08-133, Review of Economic Dynamics.
  17. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  18. Yongheng Deng & John M. Quigley & Robert Van Order, . "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Zell/Lurie Center Working Papers 322, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  19. Edward S. Knotek II & Stephen Terry, 2008. "Markov-chain approximations of vector autoregressions: application of general multivariate-normal integration techniques," Research Working Paper RWP 08-02, Federal Reserve Bank of Kansas City.
  20. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
  21. Patrick Bajari & Chenghuan Sean Chu & Minjung Park, 2008. "An Empirical Model of Subprime Mortgage Default From 2000 to 2007," NBER Working Papers 14625, National Bureau of Economic Research, Inc.
  22. Joseph Gruber & Robert Martin, 2003. "Precautionary savings and the wealth distribution with illiquid durables," International Finance Discussion Papers 773, Board of Governors of the Federal Reserve System (U.S.).
  23. Satyajit Chatterjee & Burcu Eyigungor, 2009. "Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy," Working Papers 09-22, Federal Reserve Bank of Philadelphia.
  24. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  25. Anthony Pennington-Cross, 2006. "The Value of Foreclosed Property," Journal of Real Estate Research, American Real Estate Society, vol. 28(2), pages 193-214.
  26. Athreya, Kartik B., 2002. "Welfare implications of the Bankruptcy Reform Act of 1999," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1567-1595, November.
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Citations

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Cited by:
  1. Juan Carlos Hatchondo & Leonardo Martinez & Juan M. Sánchez, 2013. "Life cycle patterns and boom-bust dynamics in U.S. housing prices," Economic Synopses, Federal Reserve Bank of St. Louis.
  2. Kyle F. Herkenhoff & Lee Ohanian, 2012. "Foreclosure delay and U.S. unemployment," Working Papers 2012-017, Federal Reserve Bank of St. Louis.
  3. Gerardi, Kristopher & Herkenhoff, Kyle F. & Ohanian, Lee E. & Willen, Paul S., 2013. "Unemployment, negative equity, and strategic default," Working Paper 2013-04, Federal Reserve Bank of Atlanta.
  4. Athreya, Kartik & Sánchez, Juan M. & Tam, Xuan S. & Young, Eric R., 2012. "Bankruptcy and delinquency in a model of unsecured debt," Working Papers 2012-042, Federal Reserve Bank of St. Louis, revised 30 Jan 2014.
  5. Kyle F. Herkenhoff, 2012. "Informal unemployment insurance and labor market dynamics," Working Papers 2012-057, Federal Reserve Bank of St. Louis.

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