Falling Behind: Bank Data on the Role of Income and Savings in Mortgage Default

Farrell, Diana; Bhagat, Kanav; Zhao, Chen

doi:10.2139/ssrn.3273062

Cited by 4 publications

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“… See Farrell et al (2017) and Farrell, Bhagat and Zhao (2018) for JPMCI research using this linked dataset.16 Nineteen percent of Chase-serviced first liens had second liens in 2011, which is similar to 15 percent for a benchmark sample of first liens linked to credit bureau data called Credit Risk Insight Servicing McDash.…”

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confidence: 88%

Why Do Borrowers Default on Mortgages? A New Method for Causal Attribution

Ganong

Noel

2020

SSRN Journal

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confidence: 88%

Why Do Borrowers Default on Mortgages? A New Method for Causal Attribution

Ganong

Noel

2020

SSRN Journal

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“…We speculate that once families experience multiple vulnerabilities simultaneously (i.e., larger family size, higher pre-existing debt, need for larger Startlån loans or municipal grants), that already sets the stage for more unstable payment histories. This instability may be further exacerbated by any further and unanticipated economic shocks to the household such as the loss of employment or extended medical leaves because of illness [28][29][30][31][32][33][34][35][36].…”

Section: Policy Discussion and Implicationsmentioning

confidence: 99%

“…The theoretical literature, e.g., [24][25][26][27][28][29][30][31][32][33][34], has placed emphasis on predicting strategic defaults-deliberate decisions by borrowers to walk away from mortgage obligations when they are not constrained by recourse laws. Previous studies suggest that negative home equity and adverse life events-job loss, illness, relocation, or marital dissolution-are the primary triggers associated with mortgage delinquencies or decisions to make strategic defaults, e.g., [24][25][26][27][28][29][30][31][32][33][34][35][36]. However, Tian et.…”

Section: Mortgage Arrears Among Vulnerable and Immigrant Homeownersmentioning

confidence: 99%

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Serious Mortgage Arrears among Immigrant Descendant and Native Participants in a Low-Income Public Starter Mortgage Program: Evidence from Norway

Aarland¹,

Santiago

2023

Societies

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Although low-income homeownership programs serving vulnerable families at the lower end of the income distribution have been the focus of housing policy in many countries over the past 50 years, little is known about the post-origination experiences of immigrant families participating in these programs. Notably absent from the extant literature are studies examining the sustainability of homeownership among immigrant homebuyers and their susceptibility to falling behind on payments and experiencing mortgage defaults, evictions, or short sales. Utilizing data from 8263 families participating in Norway’s Starter Mortgage Program (Startlån) during the first three calendar years after mortgage origination, we examine the extent to which serious mortgage arrears varies by immigrant background. Two primary questions shape our research: (1) What is the incidence of serious mortgage arrears among Western, Eastern European, and non-Western immigrant homeowners relative to ethnic Norwegians participating in a public low-income homeownership program? and (2) What pre- and post-origination characteristics of applicants and households, mortgage terms at the time of origination, and experiences of household financial vulnerability or economic shocks predict heterogeneity in serious mortgage arrears by immigrant backgrounds? We found that 6.1% of ethnic Norwegian, 6.2% of Western, 4.9% of non-Western, and 3.2% of Eastern European immigrant homeowners participating in the Starter Mortgage Program were in serious mortgage arrears at least once during the first three calendar years after mortgage origination. Results from our negative binomial regression analyses suggest that program participants who were sole owners, with larger families, and higher debt were more likely to experience serious mortgage arrears; these effects were accentuated for ethnic Norwegians. Additionally, mortgage terms at the time of origination produced differential effects by immigrant background. Compared to Western and Eastern European immigrant homeowners, ethnic Norwegians were more likely to have experienced serious mortgage arrears if they purchased a single-family home, had larger LTV and DTI ratios, or if the Startlån share of their mortgages was higher. Non-Western immigrant mortgagors were more likely to make late mortgage payments if they had larger LTV ratios, interest-only mortgage servicing, or if they were more reliant on Startlån funds to finance their mortgages; however, this risk was reduced if they had fixed-rate mortgages. Financial vulnerability in terms of higher debt or fewer assets also increased the risk of serious mortgage arrears for ethnic Norwegians and non-Western immigrant homeowners, while increases in real wealth reduced that risk for all immigrant mortgagor groups.

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Why do Borrowers Default on Mortgages?

Ganong

Noel

2022

The Quarterly Journal of Economics

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There are three prevailing theories of mortgage default: strategic default (driven by negative equity), cash flow default (driven by negative life events), and double-trigger default (where both negative triggers are necessary). It has been difficult to test between these theories in part because negative life events are measured with error. We address this measurement error using a comparison group of borrowers with no strategic-default motive. Our central finding is that only 6 percent of underwater defaults are caused exclusively by negative equity, an order of magnitude lower than previously thought. We then analyze the remaining defaults. We find that 70 percent are driven solely by negative life events (i.e., cash flow defaults), while 24 percent are driven by the interaction between negative life events and negative equity (i.e., double-trigger defaults). Together, the results provide a full decomposition of the three theories underlying borrower default and suggest that negative life events play a central role.

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Falling Behind: Bank Data on the Role of Income and Savings in Mortgage Default

Cited by 4 publications

References 0 publications

Why Do Borrowers Default on Mortgages? A New Method for Causal Attribution

Why Do Borrowers Default on Mortgages? A New Method for Causal Attribution

Serious Mortgage Arrears among Immigrant Descendant and Native Participants in a Low-Income Public Starter Mortgage Program: Evidence from Norway

Why do Borrowers Default on Mortgages?

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