IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v61y2026i2p1011-1035_15.html

Default Costs and Repayment of Underwater Mortgages

Author

Listed:
  • Brueckner, Jan K.
  • Conklin, James N.
  • Coulson, N. Edward
  • Diop, Moussa

Abstract

We explore an overlooked phenomenon in mortgage markets: repayment of underwater mortgages. Using a sample of mortgages terminated between 2007 and 2016, we show that such repayment indeed occurs, and that it is affected by the same factors commonly used in studies of default: the magnitude of home equity and the borrower’s credit score, which captures default cost as well as liquidity. A novel insight is that underwater repayers, unlike most defaulters, are not liquidity constrained, providing a much cleaner environment to study default costs. We estimate lower bounds on these costs. Our results indicate that default costs are substantial.

Suggested Citation

  • Brueckner, Jan K. & Conklin, James N. & Coulson, N. Edward & Diop, Moussa, 2026. "Default Costs and Repayment of Underwater Mortgages," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 61(2), pages 1011-1035, March.
    • Handle: RePEc:cup:jfinqa:v:61:y:2026:i:2:p:1011-1035_15
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109025101774/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    More about this item

    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:cup:jfinqa:v:61:y:2026:i:2:p:1011-1035_15. 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: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    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.