Many studies have addressed the question of why people default on their mortgages, but lack of data has meant that much of this research has omitted the effect of the owner's ability to pay. This column uses panel data on defaults and changes in income to show that ability to pay is a much more important determinant of default than previously recognised. If the head of household loses a job, for example, this is equivalent to the effect of a 35% drop in home equity. Policies targeted at increasing ability to pay may be more effective at reducing default than those that try to remedy negative equity.
Kristopher S. Gerardi, Kyle Herkenhoff, Lee Ohanian, Paul S. Willen, 10 January 2017
Janine Aron, John Muellbauer, 31 August 2016
Mortgage delinquencies and foreclosures have serious implications, not just for the households affected, but for the financial stability of the economy. The solvency of the mortgage lenders is affected, and their ability to extend credit. This column identifies three key drivers of delinquency and foreclosure rates in the UK – the debt service ratio, the proportion of homes in negative equity, and the unemployment rate – and compares the rates with those in the US. It also discusses the data constraints that have hindered previous analyses.
Michelle White, Wenli Li, 01 December 2009
Did US bankruptcy laws exacerbate the housing crisis? This column says that a 2005 reform that made declaring personal bankruptcy more difficult increased mortgage defaults and home foreclosures. It recommends reversing that legislation to reduce the number of foreclosures, which have high social costs.