Zero down payment mortgage default
AbstractPrevious research has focused on equity as a prime determinant of mortgage default propensities. This paper extends the analysis of mortgage default to include mortgages that require no down payment from the purchaser. A continuous time hazard model is used to estimate the conditional probability of a serious delinquency, or a claim, as a function of a host of standard control variables, and indicators for the presence and source of the down payment. The data consist of a nationally representative random sample of about 5,000 FHA insured single family mortgages endorsed in Fiscal Years 2000, 2001, and 2002, observed through September 30, 2006, and samples of about 1,000 FHA loans each from the Atlanta, Indianapolis, and Salt Lake City MSAs in the same time period. The results indicate that borrowers who provide down payments from their own resources have significantly lower default propensities than do borrowers whose down payments come from relatives, government agencies, or non-profits. Borrowers with down payments from seller-funded non-profits, who make no down payment at all, have the highest default rates. Additionally, borrowers who do not make down payments from their own resources tend to have higher loss given default in the small subset of loans that had completed the property disposition process.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4318.
Date of creation: 31 Jul 2007
Date of revision:
mortgage default; down payment; credit risk; mortgage termination; mortgage performance; FHA; down payment assistance; Nehemiah mortgage; Ameridream;
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Austin Kelly finds that Zero Down Mortgages perform really badly
by Richard K. Green in Richard's Real Estate and Urban Economics Blog on 2008-03-24 02:45:00
- Carson, Richard T & Dastrup, Samuel R., 2009.
"After the Fall: An Ex Post Characterization of Housing Price Declines Across Metropolitan Areas,"
University of California at San Diego, Economics Working Paper Series
qt7ng9d927, Department of Economics, UC San Diego.
- Richard T. Carson & Samuel R. Dastrup, 2013. "After The Fall: An Ex Post Characterization Of Housing Price Declines Across Metropolitan Areas," Contemporary Economic Policy, Western Economic Association International, vol. 31(1), pages 22-43, 01.
- Ben-David, Itzhak, 2011. "High Leverage and Willingness to Pay: Evidence from the Residential Housing Market," Working Paper Series 2011-17, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
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