By the end of 2009, one out of every 11 mortgages was seriously delinquent or in foreclosure. Economists have devoted considerable energy over the past several years to understanding the underlying causes of this increase in defaults. One goal is to provide a guide to dealing with the existing problems. In addition, a better understanding may help avoid future problems. In this article, Ronel Elul reviews recent research that has shed light on two areas: the extent to which securitization is responsible for the increase in default rates; and the relative contributions of negative equity, compared with “liquidity shocks,” in explaining mortgage default.
This article appeared in the Fourth Quarter 2010 edition of Business Review.
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