Application of Default Barrier and the Scrutiny of Default Decision under Securitization

The rates of default and foreclosure have increased sharply due to the subprime mortgage meltdown back in late 2006. To a certain extent, the crisis is related to the popularity of securitization that has increased the supply of credit, especially in areas in which rejections of mortgage application were prevalent before. Many believe the notion that the crisis is mainly caused by a large increase of low-quality borrowers. Using a sample of foreclosed loans under securitization, our purpose is to provide a groundwork for determining whether the aforementioned notion can be substantiated through the use of actual data. Specifically, if securitization is not the key to the crisis, a large number of rational default should exist. Contrary to such idea, the statistical result from our dataset shows that a large number of defaults are caused by life-events, and therefore, providing grounds to believe that securitization is a likely suspect for the collapse of the housing market.