## What Drives Mortgage Default Risk in Europe and the U.S.?

_IMF Working Papers, April 1, 2022_

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## Bibliographic details
- Authors: Marco Gross, Thierry Tressel, Xiaodan Ding, Eugen Tereanu
- Published: April 1, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400205705.001

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### Research scope and methodology
- Analysis of the sensitivity of household mortgage probabilities of default (PDs) and loss given default (LGDs) to:
  - Unemployment rates
  - House price growth
  - Interest rates
  - Other drivers
- Method: structural micro-macro simulation model anchored in balance sheets and income-expense flow data from about 95,000 households and 230,000 household members from 21 EU countries and the U.S.
- Outputs: country-specific nonlinear regressions based on the structural model simulation-implied relation between PDs and LGDs and their drivers, usable for macro scenario-conditional forecasting without running the micro simulation.

### Key findings and analytical results
- The paper quantifies sensitivity of mortgage PDs and LGDs to macroeconomic drivers (unemployment, house prices, interest rates) using the structural micro-macro model.
- Country-specific nonlinear regressions capture heterogeneity across the 21 EU countries and the U.S.
- The model supports macro scenario-conditional forecasting of mortgage credit risk by mapping macro variables to PDs and LGDs via the estimated nonlinear relations.

### Policy analysis and counterfactuals
- Presents a policy counterfactual analysis of the responsiveness of:
  - Mortgage PDs
  - Mortgage LGDs
  - Bank capitalization
  conditional on adverse scenarios related to the COVID-19 pandemic across all countries in the sample.
- Discusses the economics of debt moratoria and guarantees in the context of the model-based analysis.

### Practical applications
- Country-specific nonlinear regression results can be applied directly for:
  - Macro scenario-conditional forecasting of mortgage default risk
  - Policy evaluation of measures such as debt moratoria and guarantees
  - Assessing banking sector capitalization needs under adverse scenarios

### Publication and metadata
- Authors: Marco Gross, Thierry Tressel, Xiaodan Ding, Eugen Tereanu
- Date: April 1, 2022
- Pages: 38
- Volume: 2022
- Issue: 065
- Series: Working Paper No. 2022/065
- DOI: https://doi.org/10.5089/9798400205705.001
- Stock No: WPIEA2022065
- ISBN: 9798400205705
- ISSN: 1018-5941

*Source: IMF Working Paper — "What Drives Mortgage Default Risk in Europe and the U.S.?"*

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_Source: https://www.imf.org/en/publications/wp/issues/2022/04/01/what-drives-mortgage-default-risk-in-europe-and-the-u-s-515963_