Mortgage Default and Possession Under Recourse: A Competing Hazards Approach

Recent studies by Ambrose, Buttimer, and Capone have stressed the fact that lender and borrower decisions after the initial default on amortgage may significantly affect the amount and timing of recoveries and hence, more broadly, the value and riskiness of mortgage loan portfolios. This study uses microeconomic data from the UK to examine the timing decisions of mortgage lenders and borrowers when mortgages are in default. The results suggest that salary and interest rates influence timing decisions more than loan-to-value ratios do and that lenders and borrowers accelerate the resolution of delinquent mortgages as the economic climate deteriorates.