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The Conditional Probability of Mortgage Default

Author

Listed:
  • Dennis R. Capozza
  • Dick Kazarian
  • Thomas A. Thomson

Abstract

This research examines the implications of contingent‐claims models for empirical research on default. We focus on the probability of default over a short horizon given the current state of the world, i.e., the conditional probability of default, which more closely resembles the estimates of empirical models. We highlight the differences between the conditional and unconditional approaches and provide guidance for empirical research by illuminating situations where the expected sign reverses over the shorter horizon or where the functional form is highly nonlinear.

Suggested Citation

  • Dennis R. Capozza & Dick Kazarian & Thomas A. Thomson, 1998. "The Conditional Probability of Mortgage Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 259-289, September.
    • Handle: RePEc:bla:reesec:v:26:y:1998:i:3:p:259-289
    DOI: 10.1111/1540-6229.00750
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    Cited by:

    1. Chao Tian & Roberto Quercia & Sarah Riley, 2016. "Unemployment as an Adverse Trigger Event for Mortgage Default," The Journal of Real Estate Finance and Economics, Springer, vol. 52(1), pages 28-49, January.
    2. Ebrahim, M. Shahid & Shackleton, Mark B. & Wojakowski, Rafal M., 2011. "Participating mortgages and the efficiency of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3042-3054, November.
    3. Xudong An & Yongheng Deng & Eric Rosenblatt & Vincent Yao, 2012. "Model Stability and the Subprime Mortgage Crisis," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 545-568, October.
    4. Dennis Capozza & Thomas Thomson, 2004. "Optimal Stopping and Losses on Subprime Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 115-131, November.
    5. Hartarska, Valentina M. & Gonzalez-Vega, Claudio, 2002. "A Comparison Of Option-Theoretic And Choice-Theoretic Approaches To Evaluating Alternative Financial Technologies For Mortgage Loans To Low-Income Households," 2002 Annual meeting, July 28-31, Long Beach, CA 19645, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Seow Ong & Tien Sing & Alan Teo, 2007. "Delinquency and Default in Arms: The Effects of Protected Equity and Loss Aversion," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 253-280, October.
    7. David Feldman & Shulamith Gross, 2005. "Mortgage Default: Classification Trees Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 30(4), pages 369-396, June.
    8. Willemann, Søren, 2005. "GSE Funding Advantages and Mortgagor Benefits: Answers from Asset Pricing," Finance Research Group Working Papers F-2005-04, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    9. Avanzini, Diego & Martı́nez, Juan Francisco & Pérez, Vı́ctor, 2020. "Assessing mortgage default risk in full-recourse economies, with an application to the case of Chile," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    10. O. Emre Ergungor, 2009. "Foreclosures in Ohio: does lender type matter?," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
    11. Hartarska, Valentina M. & Gonzalez-Vega, Claudio, 2001. "Credit Counseling And Mortgage Loan Default By Rural And Urban Low Income Households," 2001 Annual meeting, August 5-8, Chicago, IL 20740, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. David M. Harrison & Thomas G. Noordewier & K. Ramagopal, 2002. "Mortgage Terminations: The Role of Conditional Volatility," Journal of Real Estate Research, American Real Estate Society, vol. 23(1/2), pages 89-110.
    13. Mikkel Svenstrup & Soren Willemann, 2006. "Reforming Housing Finance - Perspectives from Denmark," Journal of Real Estate Research, American Real Estate Society, vol. 28(2), pages 105-130.
    14. Robert Feinberg & David Nickerson, 2002. "Crime and residential mortgage default: an empirical analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 9(4), pages 217-220.
    15. Dennis Capozza & Thomas Thomson, 2006. "Subprime Transitions: Lingering or Malingering in Default?," The Journal of Real Estate Finance and Economics, Springer, vol. 33(3), pages 241-258, November.
    16. Yan Chang & Abdullah Yavas, 2009. "Do Borrowers Make Rational Choices on Points and Refinancing?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 635-658, December.
    17. Charles D. Anderson & Dennis R. Capozza & Robert Van Order, 2011. "Deconstructing a Mortgage Meltdown: A Methodology for Decomposing Underwriting Quality," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 609-631, June.
    18. Eddie Lam, 2002. "A Risk Management Model for MBS Issuers," International Real Estate Review, Global Social Science Institute, vol. 5(1), pages 169-195.
    19. Diego Avanzini & Juan Francisco Martínez & Víctor Pérez, 2016. "A micro-powered model of mortgage default risk for full recourse economies, with an application to the case of Chile," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Combining micro and macro data for financial stability analysis, volume 41, Bank for International Settlements.
    20. Wilson Sy, 2007. "A Causal Framework for Credit Default Theory," Research Paper Series 204, Quantitative Finance Research Centre, University of Technology, Sydney.

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