Determinants of Multifamily Mortgage Default

Working Paper No. 99-2

56 Pages Posted: 2 May 2001

See all articles by Peter J. Elmer

Peter J. Elmer

Government of the United States of America - Division of Research and Statistics

David C. Ling

University of Florida - Warrington College of Business Administration

Wayne R. Archer

University of Florida - Warrington College of Business Administration

David Harrison

Texas Tech University

Date Written: June 1999

Abstract

Option-based models of mortgage default posit that the central measure of default risk is the loan-to-value (LVT) ratio. We argue, however, that an unrecognized problem with extending the basic option model to exisiting multifamily and commercial mortgages is that key variables in the option model are endogenous to the loan origination and property sale process. This endogeneity implies, amoung other things, that no emperical relation may be observed between default and LTV. This is because lenders may require lower LTVs in order to mitigate risk so mortgages with low and moderate LTVs may be as likely to default as those with high LTVs. Mindful of this risk endogeneity and its emperical implications, we examine the default experience of 9,639 multifamily mortgage loans securitized by the Resolution Trust Corporation (RTC) and the Federal Deposit Insurance Corporation (FDIC) during the period 1991-1996. The extensive nature of the data supports multivariate analysis of default incidence in a number of respects not possible in previous studies.

JEL Classification: G2, L1

Suggested Citation

Elmer, Peter J. and Ling, David Curtis and Archer, Wayne R. and Harrison, David, Determinants of Multifamily Mortgage Default (June 1999). Working Paper No. 99-2, Available at SSRN: https://ssrn.com/abstract=170088 or http://dx.doi.org/10.2139/ssrn.170088

Peter J. Elmer (Contact Author)

Government of the United States of America - Division of Research and Statistics ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
202-898-7366 (Phone)
202-898-7222 (Fax)

David Curtis Ling

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9307 (Phone)
352-392-0301 (Fax)

Wayne R. Archer

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States
352-392-1330 (Phone)
352-392-0301 (Fax)

David Harrison

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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