Research Report for Importance of Mortgage Downpayment as a Deterrent to Delinquency and Default as Observed in Black Knight (McDash) Servicing History
This study was contracted to examine the effectiveness of mortgage down payment as a deterrent to delinquency and default. The analysis utilized Black Knight (LPS/McDash) Financial Services loan-level mortgage origination and performance data of major mortgage servicers across a wide range of mortgage markets. The study objectives were to 1) construct a database that expedites future empirical examination, and 2) empirically examine the impact of mortgage down payment on the probability of mortgage delinquency and default, holding other relevant loan-level and macroeconomic factors constant. The study found higher down payments (in proportion to home value) reduced delinquency and default risk. The study also quantified compensating factors that could make up for smaller down payments without increased risk. The magnitude of macroeconomic effects on delinquency and default risk, such as unemployment, home price appreciation, and mortgage rates—and effects of their interaction with loan-level factors—were also reported.