The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program
20 Pages Posted: 26 Oct 2015
Date Written: Winter 2015
Abstract
This article evaluates the effect of payment reduction on mortgage default within the context of the Home Affordable Refinance Program. 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 10–11% reduction in monthly default hazard for loans. This finding is robust to the inclusion of empirically important mortgage risk drivers (such as current loan‐to‐value and FICO score) as well as controlling for selection effects based on observables.
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The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program
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