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Foreclosure delay and U.S. unemployment

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Author Info

  • Kyle F. Herkenhoff
  • Lee Ohanian

Abstract

Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of "informal" unemployment insurance during the 2007 recession and the subsequent recovery. In a dynamic model, we capture this behavior by treating both delinquency and foreclosure not as one period events, but rather as protracted and potentially reversible episodes that influence job search behavior and wage acceptance decisions. With a relatively conservative parameterization, we find that the observed foreclosure delays increase the unemployment rate by an additional 1/3%-1/2% and increase the stock of delinquent loans by 8%-12%. When interpreted as an implicit line of credit, those that use their mortgage as “informal" unemployment insurance borrow at a real rate of at least 18%.>

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-017.

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Date of creation: 2012
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Handle: RePEc:fip:fedlwp:2012-017

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Related research

Keywords: Foreclosure ; Unemployment;

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References

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  1. Satyajit Chatterjee & Burcu Eyigungor, 2011. "A quantitative analysis of the U.S. housing and mortgage markets and the foreclosure crisis," Working Papers 11-26, Federal Reserve Bank of Philadelphia.
  2. Juan Carlos Hatchondo & Leonardo Martinez & Juan M. Sanchez, 2011. "Mortgage defaults," Working Paper 11-05, Federal Reserve Bank of Richmond.
  3. Xavier Mateos-Planas & David Benjamin, 2012. "Formal vs. Informal Default in Consumer Credit," 2012 Meeting Papers 144, Society for Economic Dynamics.
  4. Manuel Adelino & Kristopher Gerardi & Paul S. Willen, 2009. "Why Don't Lenders Renegotiate More Home Mortgages? Redefaults, Self-Cures and Securitization," NBER Working Papers 15159, National Bureau of Economic Research, Inc.
  5. Satyajit Chatterjee & Burcu Eyigungor, 2009. "Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy," Working Papers 09-22, Federal Reserve Bank of Philadelphia.
  6. David Benjamin & Mark L. J. Wright, 2009. "Recovery Before Redemption: A Theory Of Delays In Sovereign Debt Renegotiations," CAMA Working Papers 2009-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  7. David Benjamin, 2008. "Recovery Before Redemption," 2008 Meeting Papers 531, Society for Economic Dynamics.
  8. Alan B. Krueger & Andreas Mueller, 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," Working Papers 1070, Princeton University, Department of Economics, Industrial Relations Section..
  9. Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
  10. Ambrose, Brent W & Buttimer, Richard J, Jr & Capone, Charles A, 1997. "Pricing Mortgage Default and Foreclosure Delay," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 314-25, August.
  11. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006. "Why Has House Price Dispersion Gone Up?," NBER Working Papers 12538, National Bureau of Economic Research, Inc.
  12. Satyajit Chatterjee, 2010. "An Equilibrium Model of the Timing of Bankruptcy Filings," 2010 Meeting Papers 1282, Society for Economic Dynamics.
  13. repec:acb:camaaa:2009-15 is not listed on IDEAS
  14. Casey B. Mulligan, 2011. "Means-Tested Subsidies and Economic Performance Since 2007," NBER Working Papers 17445, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Kurt Mitman & Iourii Manovskii & Fatih Karahan & Marcus Hagedorn, 2013. "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects," 2013 Meeting Papers 1260, Society for Economic Dynamics.
  2. Steven Laufer, 2013. "Equity extraction and mortgage default," Finance and Economics Discussion Series 2013-30, Board of Governors of the Federal Reserve System (U.S.).
  3. Casey B. Mulligan, 2012. "Recent Marginal Labor Income Tax Rate Changes by Skill and Marital Status," NBER Working Papers 18426, National Bureau of Economic Research, Inc.
  4. Gerardi, Kristopher & Herkenhoff, Kyle F. & Ohanian, Lee E. & Willen, Paul S., 2013. "Unemployment, negative equity, and strategic default," Working Paper 2013-04, Federal Reserve Bank of Atlanta.

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