TERMINATION OF DISTRESSED RESIDENTIAL MORTGAGES - AN EMPIRICAL-ANALYSIS

A sample of 209 distressed mortgages is used to analyze the terminatio ns of distressed mortgages. An option-based model is compared to a tra ditional default model. Results show that the traditional model is sta tistically superior. However, the model's ability to identify a defaul t is similar to that of the simpler option-based model. Alternative me asures of borrower's equity are compared. Measuring borrower's equity using total debt more accurately explains default than using either th e mortgage balance or the mortgage value.