Foreclosure delay and U.S. unemployment
AbstractThrough 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 InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-017.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-23 (All new papers)
- NEP-DGE-2012-07-23 (Dynamic General Equilibrium)
- NEP-LAB-2012-07-23 (Labour Economics)
- NEP-URE-2012-07-23 (Urban & Real Estate Economics)
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