MODELING THE CONDITIONAL-PROBABILITY OF FORECLOSURE IN THE CONTEXT OFSINGLE-FAMILY MORTGAGE DEFAULT RESOLUTIONS

Both empirical and pricing-simulation models of mortgage default focus on foreclosure in a one-step decision framework. Such models are miss pecified to the extent that mortgage default and foreclosure are two s eparate decisions or events, where foreclosure is but one outcome of a default episode. This study examines the dynamics of mortgage borrowe r default Episodes using a large sample of FHA-insured single-family m ortgages. We estimate the influence of borrower characteristics, mortg age terms, and economic conditions on probabilities of various resolut ions, highlighting under what conditions foreclosure is more likely to result from mortgage default.