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'Skin in the Game': Zero Down Payment Mortgage Default

Austin Kelly

Federal Housing Finance Agency (FHFA)


Journal of Housing Research, Vol. 19, No. 2, 2008

Previous research has focused on equity as a prime determinant of mortgage default propensities. This paper extends the analysis of mortgage default to include mortgages that require no down payment from the purchaser. The results indicate that borrowers who provide down payments from their own resources have significantly lower default propensities than do borrowers whose down payments come from relatives, government agencies, or non-profits. Borrowers with down payments from seller-funded non-profits, who make no down payment at all, have the highest default rates. Additionally, borrowers who do not make down payments from their own resources tend to have higher loss given default in the small subset of loans that had completed the property disposition process. A competing risks, continuous time hazard model with Heckman-Singer non-parametric heterogeneity is used to estimate the conditional probability of a serious delinquency, or a claim, as a function of a host of standard control variables, and indicators for the presence and source of the down payment. The data consist of a nationally representative random sample of about 5,000 FHA insured single family mortgages endorsed in Fiscal Years 2000, 2001, and 2002, observed through September 30, 2006, and samples of about 1,000 FHA loans each from the Atlanta, Indianapolis, and Salt Lake City MSAs in the same time period.

Number of Pages in PDF File: 26

Keywords: mortgage default, down payment, credit risk, mortgage termination, mortgage performance, FHA, down payment assistance, Nehemiah mortgage, Ameridream

JEL Classification: G2, G21, G28, R2, R21

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Date posted: January 25, 2009 ; Last revised: December 18, 2009

Suggested Citation

Kelly, Austin, 'Skin in the Game': Zero Down Payment Mortgage Default (2008). Journal of Housing Research, Vol. 19, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=1330132

Contact Information

Austin J. Kelly (Contact Author)
Federal Housing Finance Agency (FHFA) ( email )
1700 G St. NW
Washington, DC 20552
United States
202 414-1336 (Phone)
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