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  4. Payment Size, Negative Equity, and Mortgage Default
 
research article

Payment Size, Negative Equity, and Mortgage Default

Fuster, Andreas  
•
Willen, Paul S.
November 2017
American Economic Journal: Economic Policy

This paper studies the treatment effect of monthly payment size on mortgage default, using a sample of adjustable-rate loans that experienced large payment reductions thanks to the recent low interest rate environment. Payment size has an economically large effect on repayment behavior; for instance, cutting the required payment in half reduces the delinquency hazard by about 55 percent. Importantly, the link between payment size and delinquency is equally strong for borrowers that are significantly underwater on their mortgage. Relying on payment reductions for identification circumvents the selection concerns due to prepayments that would be associated with rate increases.

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Type
research article
DOI
10.1257/pol.20150007
Author(s)
Fuster, Andreas  
Willen, Paul S.
Date Issued

2017-11

Published in
American Economic Journal: Economic Policy
Volume

9

Issue

4

Start page

167

End page

191

Editorial or Peer reviewed

REVIEWED

Written at

OTHER

EPFL units
SFI-AF  
Available on Infoscience
December 7, 2021
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/183728
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