IDEAS home Printed from https://ideas.repec.org/a/aea/aejpol/v9y2017i4p167-91.html

Payment Size, Negative Equity, and Mortgage Default

Author

Listed:
  • Andreas Fuster
  • Paul S. Willen

Abstract

This paper studies the treatment effect of monthly payment size on mortgage default, using a sample of adjustable-rate loans that experienced large payment reductions thanks to the recent low interest rate environment. Payment size has an economically large effect on repayment behavior; for instance, cutting the required payment in half reduces the delinquency hazard by about 55 percent. Importantly, the link between payment size and delinquency is equally strong for borrowers that are significantly underwater on their mortgage. Relying on payment reductions for identification circumvents the selection concerns due to prepayments that would be associated with rate increases.

Suggested Citation

  • Andreas Fuster & Paul S. Willen, 2017. "Payment Size, Negative Equity, and Mortgage Default," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 167-191, November.
    • Handle: RePEc:aea:aejpol:v:9:y:2017:i:4:p:167-91
    Note: DOI: 10.1257/pol.20150007
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/articles?id=10.1257/pol.20150007
    Download Restriction: no
    File URL: https://www.aeaweb.org/content/file?id=5619
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=KdKGcYNZs0dC8BnD440HdjEuEUcMbDV2
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=Rt-1ZIbzgb2KwxbFKCLQJ3p000tGIWox
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejpol:v:9:y:2017:i:4:p:167-91. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.