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How many in negative equity? The role of mortgage contract characteristics

  • Luci Ellis

An important precondition for mortgage default is that the borrower currently have negative equity, that is, that the mortgage balance be higher than the value of the property. This feature shows how sensitive the percentage of households in negative equity can be to different aspects of the mortgage contract. The recent large rise in mortgage delinquency and default rates in the United States, compared with the situation in other countries, can be partly explained by the fact that US mortgages were more likely to have characteristics that increased the incidence of negative equity.

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Article provided by Bank for International Settlements in its journal BIS Quarterly Review.

Volume (Year): (2008)
Issue (Month): (December)
Pages:

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Handle: RePEc:bis:bisqtr:0812h
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  1. Luci Ellis, 2010. "The Housing Meltdown: Why Did It Happen in the United States?," International Real Estate Review, Asian Real Estate Society, vol. 13(3), pages 351-394.
  2. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2008. "Housing Busts and Household Mobility," NBER Working Papers 14310, National Bureau of Economic Research, Inc.
  3. Diaz-Serrano, Luis, 2005. "Income volatility and residential mortgage delinquency across the EU," Journal of Housing Economics, Elsevier, vol. 14(3), pages 153-177, September.
  4. Adam B. Ashcraft & Til Schuermann, 2008. "Understanding the securitization of subprime mortgage credit," Staff Reports 318, Federal Reserve Bank of New York.
  5. Haughwout, Andrew & Peach, Richard & Tracy, Joseph, 2008. "Juvenile delinquent mortgages: Bad credit or bad economy?," Journal of Urban Economics, Elsevier, vol. 64(2), pages 246-257, September.
  6. Yongheng Deng & John M. Quigley & Robert Van Order, 1995. "Mortgage Default and Low Downpayment Loans: The Costs of Public Subsidy," NBER Working Papers 5184, National Bureau of Economic Research, Inc.
  7. Benito, Andrew, 2006. "The down-payment constraint and UK housing market: Does the theory fit the facts?," Journal of Housing Economics, Elsevier, vol. 15(1), pages 1-20, March.
  8. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
  9. Kelly D. Edmiston & Roger Zalneraitis, 2007. "Rising foreclosures in the United States: a perfect storm," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 115-145.
  10. Kerry D. Vandell & Thomas Thibodeau, 1985. "Estimation of Mortgage Defaults Using Disaggregate Loan History Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 292-316.
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