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Federal Reserve Bank of Boston
Working Papers
Mortgage-default research and the recent foreclosure crisis
Christopher L. Foote
Paul S. Willen

This paper reviews recent research on mortgage default, focusing on the relationship of this research to the recent foreclosure crisis. Research on defaults was advanced both theoretically and empirically by the time the crisis began, but economists have moved the frontier further by improving data sources, building dynamic optimizing models of default, and explicitly addressing reverse causality between rising foreclosures and falling house prices. Mortgage defaults were also a key component of early research that pointed to subprime and other privately securitized mortgages as fundamental drivers of the housing boom, although this research has been criticized recently. Going forward, improvements to data and models will allow researchers to explore the central unsolved question in this area: why mortgage default is so rare, even for households with high levels of negative equity or financial distress.

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Christopher L. Foote & Paul S. Willen, Mortgage-default research and the recent foreclosure crisis, Federal Reserve Bank of Boston, Working Papers 17-13, 01 Oct 2017.
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Keywords: Mortgage default; foreclosures; housing boom and bust; financial crisis
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