A Model of Mortgage Default
نویسندگان
چکیده
This paper solves a dynamic model of householdsmortgage decisions incorporating labor income, house price, ination, and interest rate risk. It uses a zero-pro t condition for mortgage lenders to solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quanti es the e¤ects of adjustable vs. xed mortgage rates, loan-to-value ratios, and mortgage a¤ordability measures on mortgage premia and default. Heterogeneity in borrowerslabor income risk is important for explaining the higher default rates on adjustablerate mortgages during the recent US housing downturn, and the variation in mortgage premia with the level of interest rates.
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