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Sunk Costs and Mortgage Default

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  • Richard K. Green
  • Eric Rosenblatt
  • Vincent Yao

Abstract

In this paper, we estimate default hazard functions that include standard variables along with borrowers sunk cost: i.e., down payment at loan origination. After testing large numbers of specifications, we find that after controlling for mark-to-market loan-to-value, initial combined loan to value remains an important predictor of default. We also find, contrary to Guiso, Sapienze and Zingales (2009), that there is not a specific point at which one observes a discontinuous default probability, but that it is rather that default is smooth in mark-to-market LTV.

Suggested Citation

  • Richard K. Green & Eric Rosenblatt & Vincent Yao, 2010. "Sunk Costs and Mortgage Default," Working Paper 9097, USC Lusk Center for Real Estate.
    • Handle: RePEc:luk:wpaper:9097
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    References listed on IDEAS

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    Cited by:

    1. Richard K. Green & Gary Painter & Michelle J. White, 2012. "Measuring the Benefits of Homeowning: Effects on Children Redux," Working Paper 9102, USC Lusk Center for Real Estate.

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