Seller Contributions and Mortgage Performance

A growing share of mortgages display some financial assistance from sellers, or seller contributions, leading to an inflated transaction price thus distorting the loan-to-value ratio (LTV). Our study finds that such loans have sharply increased rates of delinquency, even after accounting for this LTV distortion effect. Further, when contributions are more likely to have been requested by the buyers, instead of the sellers bringing them to the bargaining table, the association with delinquency is clearest. These contributions signal buyers’ potential liquidity constraints which may make them more vulnerable to financial shocks after origination, thus more likely to enter delinquency.