How Many in Negative Equity? The Role of Mortgage Contract Characteristics

13 Pages Posted: 24 Jul 2012

See all articles by Luci Ellis

Luci Ellis

Reserve Bank of Australia; Bank for International Settlements (BIS)

Date Written: December 8, 2008

Abstract

An important precondition for mortgage default is that the borrower currently have negative equity, that is, that the mortgage balance be higher than the value of the property. This feature shows how sensitive the percentage of households in negative equity can be to different aspects of the mortgage contract. The recent large rise in mortgage delinquency and default rates in the United States, compared with the situation in other countries, can be partly explained by the fact that US mortgages were more likely to have characteristics that increased the incidence of negative equity.

JEL Classification: G21, R21

Suggested Citation

Ellis, Luci, How Many in Negative Equity? The Role of Mortgage Contract Characteristics (December 8, 2008). BIS Quarterly Review, p. 81, December 2008, Available at SSRN: https://ssrn.com/abstract=1517227

Luci Ellis (Contact Author)

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000
Australia

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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