Residential Mortgage Default and Consumer Bankruptcy: Theory and Empirical Evidence
In this paper we develop a theory where homeowners make joint decisions in financial distress as whether to file for bankruptcy or default on their mortgages. The theory models explicitly institutional details, the federal bankruptcy law and the state foreclosure laws, that govern the two default events separately and their interactions. In particular, we derive regions (defined by households asset, liability, and income positions) where homeowners default on both loans, on one of them, and on neither of them. We then test our model using a unique dataset where we match individual credit bureau information with their mortgage loan level information. We find that the data provide support to our theory. Furthermore, for our sample period, liquidity considerations contributed more to mortgage default than to bankruptcy filing. We also find significance difference between prime and subprime loans.
|Date of creation:||2011|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Patrick Bajari & Chenghuan Sean Chu & Minjung Park, 2008. "An Empirical Model of Subprime Mortgage Default From 2000 to 2007," NBER Working Papers 14625, National Bureau of Economic Research, Inc.
- Wenli Li & Michelle J. White & Ning S. Zhu, 2010. "Did bankruptcy reform cause mortgage default rates to rise?," Working Papers 10-16, Federal Reserve Bank of Philadelphia.
- Wenli Li & Michelle J. White & Ning Zhu, 2011.
"Did Bankruptcy Reform Cause Mortgage Defaults to Rise?,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 3(4), pages 123-47, November.
- Wenli Li & Michelle J. White & Ning Zhu, 2010. "Did Bankruptcy Reform Cause Mortgage Default to Rise?," NBER Working Papers 15968, National Bureau of Economic Research, Inc.
- Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," NBER Working Papers 13265, National Bureau of Economic Research, Inc.
- Michelle J. White & Ning Zhu, 2010.
"Saving Your Home in Chapter 13 Bankruptcy,"
The Journal of Legal Studies,
University of Chicago Press, vol. 39(1), pages 33-61, 01.
- Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 175-200, Fall.
When requesting a correction, please mention this item's handle: RePEc:red:sed011:1038. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.