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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. [ABSTRACT FROM AUTHOR]

• We propose several XGBoost extensions to learn class-imbalanced data. • Fit the techniques to a vast, dynamic and public Freddie Mac mortgages data. • Assess model performance relative to data complexity and external validity. • Gauge the business value of the techniques using a profitability measure. • A proposed GEV link with a modified focal loss in XGBoost is best for rare/outlier cases. There is often a significant class imbalance in credit scoring datasets, mainly in portfolios of secured loans such as mortgage loans. A class imbalance occurs when the number of non-default cases outweighs the number of default cases. A naive classifier can achieve high accuracy by assigning all cases to the majority class; however, misclassifying the minority class is often costly. In XGBoost, a well-known and robust classification method, we propose that the quantile function of the generalized extreme value (GEV) distribution is used as a link function to enhance the detection of rare cases. To complement the GEV link function, the study applies a modified focal loss function in XGBoost to jointly penalize misclassification of the class of interest and focus on hard, tricky to classify cases. We test our proposal on a vast database of mortgage loans with rare default cases, available on the Freddie Mac website. As benchmarks, we also consider other common large credit scoring databases, existing extensions of XGBoost to handle classification imbalance and other state-of-the-art classification techniques for learning class-imbalanced data. According to the results, the proposed model has a superior predictive power to other competing models if the class imbalance is due to default events being outliers or rare in the dataset. We also demonstrate that the results will likely hold up in real-world situations and add business value under certain portfolio characteristics. [ABSTRACT FROM AUTHOR]

Banks play an important role in consumer credit, and when borrowers face a decision on whether to default on mortgage or non-mortgage loans first, banking relationship may matter. Our study provides first evidence into the interplay between banking relationship and consumer default priority via credit bureau data of 1 million individuals in Thailand. We find that same-bank borrowers are less likely to default on mortgage loans first, and borrowers with longer banking relationship and lower switching cost are more likely to default on mortgage loans first (which is welfare-improving). Our results suggest that banking relationship can lead to better outcomes for defaulting borrowers even when switching cost is high. • We study how Thai borrowers prioritize default on mortgage and non-mortgage loans. • One-third of borrowers choose to default on mortgage loans first. • Banking relationship affects default priority; stronger relationship is associated with less costly default for borrowers. [ABSTRACT FROM AUTHOR]

The main objective of this study is to investigate the size and direction of appraisal bias in the lodging sector. The hypothesis that appraisals of hotels are biased upwards is tested by comparing hotel appraisal prices (values) with their associated transaction prices in a sample of 480 hotel loans that were securitized by commercial mortgage-backed securities (CMBSs) between 2010 and 2019. The results of the study show an upward bias, and a significant negative effect of the loan-to-value (LTV) ratio on appraisal bias consistent with the observation that a decrease in leverage will increase appraisal bias. Additional findings reveal that an increase in appraisal bias is associated with an increased probability of default. • Appraisal bias in the lodging sector is substantially greater than the residential sector. • Significant negative relationship between loan-to-value ratio and appraisal bias. • Leverage ratio biased downwards by reporting of stabilized values. • Positive association between appraisal bias and mortgage loan default. • Stabilized values understate leverage and default risk and make bias more severe. [ABSTRACT FROM AUTHOR]

Financially constrained borrowers have the incentive to influence the appraisal process in order to increase borrowing or reduce the interest rate. We document that the average valuation bias for residential refinance transactions is above 5%. The bias is larger for highly leveraged transactions, around critical leverage thresholds, and for transactions mediated through a broker. Mortgages with inflated valuations default more often. Lenders account for 60%-90% of the bias through pricing. [ABSTRACT FROM AUTHOR]

This paper conducts loan-level analysis to investigate the influence of expected foreclosure delay on a borrower's default propensity. We include the actual foreclosure times in the analysis to capture the dynamic nature of foreclosure duration. Consistent with theoretical predictions, we find a statistically and economically significant impact of foreclosure delay on borrower default behavior. In the current market condition where many borrowers have negative equity, the increase in delay may make default an optimal choice for more borrowers. The negative effect of increased foreclosure delay may need to be considered when devising policies to aid troubled borrowers. [ABSTRACT FROM AUTHOR]

In this paper, we solve a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation, and interest rate risk. Using a zero-profit condition for mortgage lenders, we solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quantifies the effects of adjustable versus fixed mortgage rates, loan-to-value ratios, and mortgage affordability measures on mortgage premia and default. Mortgage selection by heterogeneous borrowers helps explain the higher default rates on adjustable-rate mortgages during the recent U.S. housing downturn, and the variation in mortgage premia with the level of interest rates. [ABSTRACT FROM AUTHOR]

Mortgage default rates rose dramatically during the recent housing market downturn, increasing from less than 1% to historically high levels. Understanding the rise in mortgage default is critical for many market participants including borrowers, lenders, investors, regulators, and policymakers. We provide a comprehensive analysis of this topic by surveying nearly 100 empirical and theoretical studies related to mortgage default. Topics in the mortgage default literature are reviewed, including (1) the determinants of mortgage termination, (2) the relative termination experience of FRMs and ARMs, (3) screening and signaling equilibriums, and (4) loan loss severity and severity rates. The implications of each topic are discussed for each group of market participants. [ABSTRACT FROM AUTHOR]

Population growth in many of Africa's towns and cities has outpaced local authority capacity to provide efficient management, infrastructure and financing. There is already debate over the capability and capacity of urban local governments to provide basic services to a growing population, due to budget constraints and inability to raise the required local-level revenue. This paper looks at how the potential of property rating can be harnessed to generate the bulk of revenue needed for local-level development, despite the huge default rates across Ghana. Focusing on Wa Municipality as a case study, the study finds that the major hurdles to property rating are poor property data systems, political interference, non-enforcement of the law, low budget deficit in financing revaluation, insufficient staffing, and insufficient technical capacity of the few staff available at the municipal valuation and rating divisions. Despite these constraints, however, field data still indicates that property rating in Ghana, and especially in Wa Municipality, can generate up to 30% of local government revenue needed. This is conditional on streamlining current challenges and improving resources for the rating and valuation units. There is extensive non-payment of property rates in Wa Municipality due to lack of awareness of the purpose of this tax, of how to pay and of the penalties for defaulting payees. [ABSTRACT FROM AUTHOR]

This study seeks to assess the determinants of property rates default in the Ashanti Region of Ghana. A multi-stage sampling technique was used to study 540 respondents from one municipal and five district assemblies within the region. A structured questionnaire collected data from the sampled respondents. Descriptive statistics (means, frequency distribution and percentages) and the probit regression model were then used to analyse the data with the help of SPSS and STATA respectively. The study found that most respondents who default are not aware of their obligation to pay property rates, and those who are aware fail to pay because they don't know where to go to pay, or think the rate is too high. The study also revealed that a demographic characteristic such as income level, property value and property location influences rates of default. The study recommends raising awareness about the need to pay property rates and the penalty for any default. [ABSTRACT FROM AUTHOR]

This article studies strategic default-the willingness of a borrower to walk away from a mortgage when the value of the home falls below the unpaid principal balance despite an ability to pay. This study differs from the literature in two fundamental ways. First, we use unique data assets describing the household's equity position and capacity to carry the debt in addition to credit performance to identify strategic defaulters accurately. Second, we address externalities from local foreclosures and other strategic defaults and find that the incidence of strategic default is sensitive to the presence of other nearby strategic defaulters. These results have significant implications for foreclosure and loss mitigation policies employed by servicers and investors. [ABSTRACT FROM AUTHOR]

The article offers information on the repossession of property after a mortgage default by banks and mortgage companies with reference to the judicial decision in the case of Marvin E. Debough v. Commissioner.

10.2 trillion dollars have been lost in the US alone in the first two years after Lehman Brothers collapse. In its wake 45% of world's wealth has been destroyed and three of the largest bankruptcies in the US have occurred. Just as the majority of observers thought lessons from Enron had been learned, crisis had struck again. Massive government intervention, the collapse of the banking system, and public outrage at the missteps of executives have highlighted once more the weaknesses of mainstream corporate governance systems. Contrary to popular opinion the principal cause of the crisis was not sub-prime mortgage defaults but a failure of corporate governance, states the Association of Chartered Certified Accountants. While the OECD is brainstorming new corporate governance codes, public policy makers are calling for more comprehensive and tougher regulation. How likely will those changes help to prevent a future crisis? Not very likely, we argue, unless we fundamentally rethink the underlying failures inherent to the Anglo- Saxon structure of corporate governance and regulation. In the following article, we thus examine the systemic shortcomings of Anglo-Saxon corporate governance that arise from too much power being vested in a single board. We also lay out alternative governance models based on the natural science of communication and control. We then identify why a single board cannot adequately and reliably control the complex firms that wield influence over our lives. Examples of alternative models provide evidence that managers can design governance architectures that significantly reduce the risk of systematic blind spots, and the ensuing massive wealth destruction. [ABSTRACT FROM AUTHOR]

Limbo loans are delinquent mortgage loans that have not progressed to resolution. We utilize a unique legal database for Florida and find no support for resolution delays from bottlenecks or bank capital constraints. Instead, the impairment of property rights can be used to help explain both the likelihood and longevity of delay. We find that the presence of the Mortgage Electronic Registration System (MERS) in both assignment and foreclosures significantly increases both the likelihood and severity of the time spent in limbo, such that a 10% increase in the presence of MERS adds around 11.5 months to the total time spent in limbo. [ABSTRACT FROM AUTHOR]

The article discusses the Florida Supreme Court's ruling in the 2016 case Bartram v. United States Bank Nat'l Ass'n which deals with Florida resident Lewis Bartram who defaulted on his mortgage and sought a declaratory judgment to cancel the mortgage and quiet title following a neglected foreclosure proceeding. A five-year statute of limitations is addressed, along with the Florida foreclosure case Singleton v. Greymar Assocs. and a res judicata legal doctrine.

We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by settlement of US state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers. Using a difference-in-differences framework, we find that Countrywide's monthly delinquency rate increased more than 0.54 percentage points-a 10 percent relative increase-immediately after the settlement's announcement. The estimated increase in default rates is largest among borrowers least likely to default otherwise. These results suggest that strategic behavior should be an important consideration in designing mortgage modification programs. (JEL D14, G21, K22, R31) [ABSTRACT FROM AUTHOR]

I use regression discontinuity analysis to measure the effect of one of the Affordable Housing Goals, the Underserved Areas Goal (UAG), on the number of whole single-family mortgages purchased by Fannie Mae and Freddie Mac (GSEs) in undeserved census tracts for 1996-2002. Focusing additionally on tracts that became UAG-eligible in 2005-2006, I measure the effect of the UAG during peak years for the subprime market. The results suggest a small UAG effect and challenge the view that the goals caused the GSEs to supply substantially more credit to high-risk borrowers than they otherwise would have supplied during the subprime boom. [ABSTRACT FROM AUTHOR]

In this study, we use functional magnetic resonance imaging (fMRI) to understand how homeowners process non-financial information when considering strategic mortgage default. We find that borrowers initially attempt to inhibit their knee-jerk reaction to retaliate against a lender who has engaged in egregious lending practices when compared to a financially conservative lender. Moreover, when defaults are rare, borrowers are less likely to default because violating the social norm results in feelings of disgust. Finally, when a lender refuses a loan modification, the borrower is found to seek retribution. Interestingly, granting even a modest loan modification removes the desire of homeowners to seek retribution towards their lender no matter what their impression of the lender may be. The results carry a number of policy implications. [ABSTRACT FROM AUTHOR]

Foreclosures tend to cluster in particular geographies and populations. The evidence for clustering is based primarily on quantitative analysis of lending or population characteristics. In this paper, we employ the housing-niche model, which uses both a quantitative sampling strategy and qualitative interviews to understand the differences between neighborhoods with high foreclosure rates, the paths residents took to arrive in these neighborhoods, the particular loans they were given, and their choices when facing foreclosure. Our ecological methodology explores the experiences of homeowners who were delinquent on their mortgages in the two neighborhoods in Nashville, Tennessee (USA), that were hit hardest by foreclosures: North Nashville and Antioch. Throughout the paper, we refer to these homeowners as "defaulters" to illustrate that all of the interviewees were delinquent and threatened with foreclosure but that only a few (n = 3) were actually in the process of formal foreclosure proceedings. The defaulters we interviewed in North Nashville felt at home in their primarily African-American community and had few neighborhood options when purchasing homes. They received high-cost loans with terms that they often did not comprehend. The defaulters we interviewed in Antioch, who were of varied ethnicities, sought speculative returns from the booming housing market and blamed minorities when the market deteriorated. The housing-niche model captures the history of individual neighborhoods and how financial practices and social conditions bring people to reside in them. Findings suggest that researchers, municipal planners, and housing advocates should use ecological models with both qualitative and quantitative analytical methods to understand concurrently the complex dimensions of high-risk households and neighborhoods with high foreclosure rates. [ABSTRACT FROM AUTHOR]

This paper presents an analysis of mortgage delinquency between 2004 and 2008 using a loan-level data set from a major national mortgage bank. Our analysis highlights two problems underlying the mortgage crisis: a reliance on mortgage brokers who tend to originate lower-quality loans and a prevalence of low-documentation loans--known in the industry as "liar's loans"--that result in borrower information falsification. While over three-quarters of the difference in delinquency rates between bank and broker channels can be attributed to observable loan and borrower characteristics, the delinquency difference between full- and low-documentation mortgages is due to unobservable heterogeneity, about half of it potentially due to income falsification. [ABSTRACT FROM AUTHOR]

This paper examines how differences in state foreclosure laws influence the incidence of default in the residential mortgage market. In particular, we examine how judicial review requirements, lenders' recourse rights (deficiency judgments), and state assistance programs for distressed borrowers affected the likelihood of default during the recent U.S. housing crisis. We argue that state foreclosure laws should have little effect on the likelihood of liquidity events (for example, shocks to borrowers' ability to make payments) and thus provide a good instrument for identifying borrowers' costs of default. We find that borrowers with negative home equity are significantly more likely to default in states with borrower-friendly foreclosure laws. Finally, we examine how recent state and federal loan foreclosure prevention programs affected the likelihood of default. Overall, we find a significant decline in the effect of judicial review requirements but not deficiency judgments on default after 2008. [ABSTRACT FROM AUTHOR]

The ease in mobility of people across the U.S.-Mexico border region provides a natural setting for analyzing the role of economic interdependency on consumer credit outcomes. Since the U.S. and Mexican economies are not entirely synchronized and have different growth rates, the growing Mexican border economy is likely to increase the consumption of U.S. goods and services in the region, and provide additional job opportunities to the U.S. border residents. Thus, the effect of being located at the border ('border effect') might reduce default and bankruptcy in the U.S. However, if both economies are nearly perfectly correlated, then the 'border effect' is likely to be insignificant. Our results are consistent with the border effect lowering the rate of bankruptcies and mortgage defaults in the U.S. counties that share a border with Mexico. An increase in the level of economic interdependency, as measured by the differential economic growth between Mexican municipalities and their sister U.S. county, decreases the bankruptcy rates in the U.S. border region. Overall, this research helps understand credit risk issues in the U.S.-Mexico border region. [ABSTRACT FROM AUTHOR]

We use a detailed dataset of seriously delinquent mortgages to examine the dynamic process of mortgage default-from initial delinquency and default to final resolution of the loan and disposition of the property. We estimate a two-stage competing risk hazard model to assess the factors associated with post-default outcomes, including whether a borrower receives a legal notice of foreclosure. In particular, we focus on a borrower's ability to avoid a foreclosure auction by getting a modification, by refinancing the loan, or by selling the property. We find that the outcomes of the foreclosure process are significantly related to: loan characteristics including the borrower's credit history, current loan-to-value and the presence of a junior lien; the borrower's post-default payment behavior, including the borrower's participation in foreclosure counseling; neighborhood characteristics such as foreclosure rates, recent house price depreciation and median income; and the borrower's race and ethnicity. [ABSTRACT FROM AUTHOR]

The article discusses the U.S. Consumer Financial Protection Bureau's Ability-to-Repay/Qualified Mortgage Rule as of February 2014, focusing on mortgage loan default, the second greatest economic recession in America's history, and mortgage loan rules under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The U.S. Federal Reserve Board and the legal rights of American consumers are mentioned, along with penalties for failure to comply with government regulations.

In this paper, I use logistic regression to study the relationship between walkability and mortgage default risk in multifamily housing in a pool of nearly 37,000 Fannie Mae loans. Walkability is measured with Walk Score, a widely available metric. Controls were introduced for loan terms, property characteristics, neighborhood conditions, and macroeconomics. Walkability reduced default risk but the relationship was nonlinear with thresholds. Default risk significantly increased where walkability was very low and significantly decreased where it was very high. The implication is that walkability and its possible benefits to health and the environment could be fostered by relaxing lending terms without adding default risk. [ABSTRACT FROM AUTHOR]

Following the Great Recession, home prices in many areas capsized, leaving many homeowners "underwater." Today, home prices have not yet returned to prerecession levels, leading many commentators to fear that these underwater mortgages will default and bring about a flood of new foreclosures. Local governments are now contemplating using the power of eminent domain to condemn these mortgages and reduce the principal owed. This move would allow homeowners to build equity and, in turn, reduce the fear of default and foreclosure. This Note analyzes the constitutionality of using eminent domain in this manner and discusses whether it would pass constitutional muster under the Fifth Amendment's Takings Clause. [ABSTRACT FROM AUTHOR]