Residential Mortgage Default Forecasting: How Much Do Price Trends Matter?

Wednesday, December 5, 2018

Michael Sklarz and Norm Miller

Norm Miller, Hahn Chair of Real Estate Finance at the University of San Diego School of Business and affiliated with the Burnham-Moores Center for Real Estate, and Michael Sklarz, chairman and chief executive officer of Collateral Analytics recently co-authored an article titled "Residential Mortgage Default Forecasting: How Much Do Price Trends Matter?"

The article addresses default rates on mortgage loansdriven by several factors, most importantly, perceived vs. actual equity in the home as reflected in current values. Miller and Sklarz point out that "when home values decline to the point where borrowers have no equity or negative equity, and they see no immediate reversal in local price trends, they often decide to default."

The authors conclude that "price uncertainty and actual and expected equity are extremely important drivers of mortgage default. Thus, good valuation models with information about price uncertainty and even price forecasts are factors that should be considered by mortgage investors."

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Contact:

Kimberly Malasky
kmalasky@sandiego.edu
(619) 260-4786