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Mortgage-Default Research and the Recent Foreclosure Crisis

56 Pages Posted: 5 Dec 2017 Last revised: 6 Dec 2017

Christopher L. Foote

Federal Reserve Bank of Boston

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Date Written: 2017-10-01

Abstract

This paper reviews recent research on mortgage default, focusing on the relationship of this research to the recent foreclosure crisis. Research on defaults was advanced both theoretically and empirically by the time the crisis began, but economists have moved the frontier further by improving data sources, building dynamic optimizing models of default, and explicitly addressing reverse causality between rising foreclosures and falling house prices. Mortgage defaults were also a key component of early research that pointed to subprime and other privately securitized mortgages as fundamental drivers of the housing boom, although this research has been criticized recently. Going forward, improvements to data and models will allow researchers to explore the central unsolved question in this area: why mortgage default is so rare, even for households with high levels of negative equity or financial distress.

Keywords: Mortgage default, foreclosures, housing boom and bust, financial crisis

JEL Classification: D12, G21, R21, R31

Suggested Citation

Foote, Christopher L. and Willen, Paul, Mortgage-Default Research and the Recent Foreclosure Crisis (2017-10-01). FRB of Boston Working Paper No. 17-13. Available at SSRN: https://ssrn.com/abstract=3082773

Christopher Foote (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-3077 (Phone)
617-973-3957 (Fax)

Paul Willen

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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