What Triggers Mortgage Default? New Evidence from Linked Administrative and Survey Data

Abstract

Abstract Why do homeowners default on mortgages? This paper studies the question using a survey specifically designed for the purpose, with a sample drawn from (and matched to) very rich administrative data. I find that a wide variety of typically-unobserved liquidity shocks together trigger nearly all defaults, so “strategic” default with no liquidity trigger is much less common than it usually appears. Conversely, even in this uniquely rich data I find that many foreclosures are not triggered by negative home equity, contrary to the predictions of almost every model in the literature.