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Underwater mortgages

Author

Listed:
  • John Krainer
  • Stephen F. LeRoy

Abstract

House prices have fallen approximately 30% from their peak in 2006, accompanied by a level of defaults and foreclosures without precedent in the post-World War II era. Many homeowners have mortgages with principal amounts higher than the market value of their properties. In general, though, the rational default point is below the \\"underwater\\" point where house price equals the remaining loan balance, and depends on prospects for future house price appreciation and borrower default costs.

Suggested Citation

  • John Krainer & Stephen F. LeRoy, 2010. "Underwater mortgages," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct18.
    • Handle: RePEc:fip:fedfel:y:2010:i:oct18:n:2010-31
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    Cited by:

    1. Gornall, Will & Strebulaev, Ilya A., 2018. "Financing as a supply chain: The capital structure of banks and borrowers," Journal of Financial Economics, Elsevier, vol. 129(3), pages 510-530.

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