PurposeThis paper aims to introduce mathematical models to capture the spreading of epidemics to explain the expansion of mortgage default events in the USA.Design/methodology/approachThe authors use the state of infectiousness and death to represent the subsequent steps of payment elinquency and default, respectively. As the local economic structure influences regional unemployment, which is a strong driver of mortgage default, the authors model interdependencies of regional mortgage default rates through employment conditions and vicinity.FindingsBased on a large sample between 2000 and 2014 of loan-level data, the estimation of key parameters of the model is proposed. The model’s forecast accuracy shows an above-average performance compared to well-known approaches such as linear regression or logit models.Originality/valueThe key findings may be useful in understanding the dynamics of mortgage defaults and its spatial spreading.
International Journal of Housing Markets and Analysis – Emerald Publishing
Published: Feb 4, 2019
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