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Working Paper

Determinants and Consequences of Mortgage Default

We study a unique data set of borrower-level credit information from TransUnion, one of the three major credit bureaus, which is linked to a database containing detailed information on the borrowers’ mortgages. We find that the updated credit score is an important predictor of mortgage default in addition to the credit score at origination. However, the 6-month change in the credit score also predicts default: A positive change in the credit score significantly reduces the probability of delinquency or foreclosure. Next, we analyze the consequences of default on a borrower’s credit score. The credit score drops on average 51 points when a borrower becomes 30-days delinquent on his mortgage, but the effect is much more muted for transitions to more severe delinquency states and even for foreclosure.
10.28.2010ISSN 2573-7953 WP 10-19DOI 10.26509/frbc-wp-201019
Keywords monetary policy, inflation targeting, exchange rate pass-through, capital account openness, small open economy
JEL Classification Codes F41, F47, E44, E47

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Demyanyk, Yuliya, Ralph S.J. Koijen, and Otto Van Hemert. 2010. “Determinants and Consequences of Mortgage Default.” Federal Reserve Bank of Cleveland, Working Paper No. 10-19. https://doi.org/10.26509/frbc-wp-201019