Speaker: Lara Loewenstein (Cleveland Fed)

Paper Title: Is There a Puzzle in Underwater Mortgage Default? (Joint with Paul Willen, Yuxi Yao, and David Zhang)

Date: Wednesday 8th/April/2026 at 9:00 AM Eastern Time

Abstract:  A recurring question in the mortgage default literature is why underwater default is rare relative to model predictions. We find that one answer is miscalibration of flow payoffs. We build a novel, detailed quantitative model of mortgage default and find that realistic rent dynamics plus mild levels of default costs are sufficient to eliminate negative-equity strategic default. We present further empirical results supporting our model’s focus on flow payoffs. Our model addresses the underwater mortgage default puzzle, offers more realistic interpretations of policy consequences, and reinforces the theoretical effectiveness of cash-flow-based interventions.

Registration: https://us06web.zoom.us/webinar/register/WN_xgSPNleiSf-6jo88h8bGJg#/registration