What Have We Learned About Mortgage Default?

*The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. The current crisis has seen an increase in mortgage default rates unprecedented since the Great Depression. By the end of 2009, one out of 11 mortgages was seriously delinquent or in foreclosure.1 In states that have been y the end of 2009, one out of every 11 mortgages was seriously delinquent or in foreclosure. Economists have devoted considerable energy over the past several years to understanding the underlying causes of this increase in defaults. One goal is to provide a guide to dealing with the existing problems. In addition, a better understanding may help avoid future problems. In this article, Ronel Elul reviews recent research that has shed light on two areas: the extent to which securitization is responsible for the increase in default rates; and the relative contributions of negative equity, compared with “liquidity shocks,” in explaining mortgage default.