The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program

Real Estate Economics, Forthcoming

Posted: 20 Jun 2015 Last revised: 22 Jun 2015

See all articles by Douglas A. McManus

Douglas A. McManus

Federal Home Loan Mortgage Corporation (FHLMC)

Jared Janowiak

Independent

Lu Ji

Federal Home Loan Mortgage Corporation (FHLMC)

Kadiri Karamon

Federal Home Loan Mortgage Corporation (FHLMC)

Jun Zhu

Urban Institute

Date Written: January 1, 2015

Abstract

This paper evaluates the effect of payment reduction on mortgage default within the context of the Home Affordable Refinance Program (HARP). We find that mortgage default is sensitive to payment reduction using univariate, duration, and hazard modeling approaches. A relative risk Cox model of default with time-varying covariates estimates that a 10% reduction in mortgage payment is associated with about a 10 to 11% reduction in monthly default hazard for loans. This finding is robust to the inclusion of empirically important mortgage risk drivers (such as current LTV and FICO score) as well as controlling for selection effects based on observables.

Keywords: mortgage default

Suggested Citation

McManus, Douglas A. and Janowiak, Jared and Ji, Lu and Karamon, Kadiri and Zhu, Jun, The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program (January 1, 2015). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2620418

Douglas A. McManus (Contact Author)

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States
703-903-2953 (Phone)

Jared Janowiak

Independent ( email )

Lu Ji

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

Kadiri Karamon

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

Jun Zhu

Urban Institute ( email )

2100 M Street N.W.
Washington, DC 20037
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
267
PlumX Metrics