UC Riverside

Since 1960, researchers have used proxies, such as debt-to-income ratio, loan-to-value ratio, combined-loan-to-value ratio, and the credit score of borrowers to measure mortgage loan performance. These variables provide a static view of mortgage defaults. However, mortgage defaults must be examined in a dynamic framework. Therefore, I used macroeconomic variables, such as real gross domestic product, the consumer price index, real median household income, interest rates, and the national home price index combined with the static variables to measure the relationships of all these variables with the default rate. I find that debt-to-income ratio, loan-to-value ratio, national home price index, and unemployment rate positively associated with the default rate, while the real gross domestic product and the real median household income negatively associated with default rate. I also find the real median household income is the most critical macroeconomic factor in predicting the default rate.