Crime and residential mortgage default: an empirical analysis

Abstract

This paper is the first to quantify the effect of crime rates on rates of default of residential mortgages. Based on a model of default in which crime rates can affect the liquidity of mortgageholders as well as their default option through property values, regression analysis is used to analyse default rates over a pooled sample of residential mortgages for all US states during 1981–1994. This study finds that crime, possibly acting as a proxy for more general economic conditions, significantly affects both the rate and timing of mortgage default.