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Determinants and Consequences of Mortgage DefaultYuliya S. DemyanykFederal Reserve Bank of Cleveland Ralph S. J. KoijenUniversity of Chicago - Booth School of Business Otto Van HemertNew York University (NYU) - Department of Finance January 18, 2011 Abstract: We study a unique data set of borrower-level credit information from TransUnion, one of the three major credit bureaus, which is linked to a database containing detailed information on the borrowers' mortgages. We find that the updated credit score is an important predictor of mortgage default. However, the 6-month change in the credit score also predicts default: A positive change in the credit score significantly reduces the probability of delinquency or foreclosure. Next, we analyze the consequences of default on a borrower's credit score. The credit score drops on average 51 points when a borrower becomes 30-days delinquent on his mortgage, but the effect is much more muted for transitions to more severe delinquency states and even foreclosure.
Number of Pages in PDF File: 40 Keywords: Mortgage default, credit score working papers seriesDate posted: October 24, 2010 ; Last revised: January 21, 2011Suggested CitationContact Information
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