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In this paper, we examine the effect of contemporaneous borrower, property, and loan characteristics on the default decision of a sample of lower income, subsidized rural borrowers participating in the Farmers Home Administration Section 502program.To our knowledge, this is the first time that borrower related panel information has been used in a default study.Contrary to prior work, contemporaneous net equity, captured by the variable loan to value ratio, was found to have no effect on default.In contrast, mortgage pa;Tr.ant to income ratio and a number of borrower related factors were found to significantly affect the default decision. Overall, the study findings suggest that the main.aspect of the FmHA Section 502 program, the interest rate subsidy, minimizes default risk for the average program participant.

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