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Modeling the Conditional Probability of Foreclosure in the Context of Single‐Family Mortgage Default Resolutions

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  • Brent W. Ambrose
  • Charles A. Capone

Abstract

Both empirical and pricing‐simulation models of mortgage default focus on foreclosure in a one‐step decision framework. Such models are misspecified to the extent that mortgage default and foreclosure are two separate decisions or events, where foreclosure is but one outcome of a default episode. This study examines the dynamics of mortgage borrower default episodes using a large sample of FHA‐insured single‐family mortgages. We estimate the influence of borrower characteristics, mortgage terms, and economic conditions on probabilities of various resolutions, highlighting under what conditions foreclosure is more likely to result from mortgage default.

Suggested Citation

  • Brent W. Ambrose & Charles A. Capone, 1998. "Modeling the Conditional Probability of Foreclosure in the Context of Single‐Family Mortgage Default Resolutions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 391-429, September.
  • Handle: RePEc:bla:reesec:v:26:y:1998:i:3:p:391-429
    DOI: 10.1111/1540-6229.00751
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    References listed on IDEAS

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    1. Ambrose, Brent W & Buttimer, Richard J, Jr, 2000. "Embedded Options in the Mortgage Contract," The Journal of Real Estate Finance and Economics, Springer, vol. 21(2), pages 95-111, September.
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