Advisory Center for Affordable Settlements & Housing

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Document Type General
Publish Date 15/09/2015
Author
Published By Kristopher Gerardi, Kyle F. Herkenhoff, Lee E. Ohanian, and Paul S. Willen
Edited By Suneela Farooqi
Uncategorized

UNEMPLOYMENT, NEGATIVE EQUITY, AND STRATEGIC DEFAULT

Prior research has found that job loss, as proxied for by regional unemployment rates, is a weak predictor of mortgage default. In contrast, using microdata from the PSID, this paper finds that job loss and adverse financial shocks are important determinants of mortgage default. Households with an unemployed head are approximately three times as likely to default as households with an employed head. Similarly, households that experience divorce, report large outstanding medical expenses, or have had any other severe income loss are much more likely to default.

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