An IV Hazard Model of Loan Default with an Application to Subprime Mortgage Cohorts

I thank Sam Hughes, Tammy Lee, Lei Ma, and especially Haoyang Liu and William Liu for helpful research assistance; discussants Kyle Mangum, Tomek Piskorski, Joe Tracy, and Jialan Wang; Isaiah Andrews, David Autor, Matt Baird, Neil Bhutta, John Campbell, Marco Di Maggio, Fernando Ferreira, Dan Fetter, Chris Foote, Peter Ganong, Chris Gillespie, Jerry Hausman, Dwight Jaffee, Amir Kermani, Pat Kline, Lauren Lambie-Hanson, Brad Larsen, Eric Lewis, Andrew Lo, Gonzalo Maturana, Taylor Nadauld, Whitney Newey, Pascal Noel, Brian Palmer, Parag Pathak, Bryan Perry, Brendan Price, Amit Seru, Shane Sherlund, Todd Sinai, Dan Sullivan, Emil Verner, Nancy Wallace, Chris Walters, Nils Wernerfelt, Bill Wheaton, Paul Willen, Heidi Williams, and Jeff Wooldridge for helpful conversations and feedback; seminar and conference participants at the AEA, Berkeley, BYU, CFPB, Duke, FDIC, Fed Board, HBS, LBS, LSE, MIT, NBER Real Estate, NEC/CEA, Northwestern, NY Fed, Philadelphia Fed, Stanford SITE, SF Fed, UCL, the UEA, Utah State, Wharton, and Yale; and participants at many MIT and Haas workshops. NSF CAREER Grant 1944138 provided support for this project, which received exempt status from MIT's IRB (1303005588). A previous version of this paper was titled “Why Did So Many Subprime Borrowers Default During the Crisis: Loose Credit or Plummeting Prices?” Code implementing the IV hazard model can be found at http://github.com/palmercj/ivhazard and on Stata via ssc install ivcloglog. First version: November 2013. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.