Liquidity problems and early payment default among subprime mortgages

• Autores: Nathan B. Anderson, Jane K. Dokko
• Localización: The Review of economics and statistics, ISSN 0034-6535, Vol. 98, Nº 5, 2016, págs. 897-912
• Idioma: inglés
• DOI: 10.1162/rest_a_00610
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• Resumen

  • We compare the twelve-month default probability among subprime borrowers differing only in the number of months before their first lump-sum property tax payment, after which time they may be exposed to reduced liquidity. We showthat borrowers with an earlier property tax bill-- within three months of origination--have 2% to 6% higher first-year default rates than borrowers facing their first property tax bill ten to twelve months after origination. Lump-sum property tax payments appear to produce a persistent state of low liquidity, the length of which raises the likelihood of default. These results are about one-third the effect size of a transition from 10% positive to 20% negative equity found in the literature. This paper provides causal evidence that liquidity constraints are important predictors of mortgage default. [ABSTRACT FROM AUTHOR]