Contributing to the delinquency of borrowers

What contributes most to borrower delinquency -"excessive" borrowing that results in greater financial stress or unforeseen negative income and wealth shocks? Using data from the 1998 Survey of Consumer Finances, this paper provides evidence that consumer delinquency problems are mainly the result of unexpected negative events that neither the lender nor the borrower could have anticipated at the time the credit request was evaluated. The size of the household payments burden has an insignificant effect on delinquency risk and very little effect on default risk. Finally, household financial assets that can be used as a buffer against negative shocks also serve as a very important predictor of delinquency risk.