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Individual and Local Effects of Unemployment on Mortgage Defaults

Author

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  • Kevin Bazer
  • Sílvio Rendon

Abstract

Using survey data from the Panel Study of Income Dynamics, we document descriptively that unemployment has a relatively large effect on individual mortgage default rates: The average default rate for the employed is 2.4%; whereas for the unemployed, it is 8.5%. Once several other characteristics are controlled for, the unemployed have default rates that are 4 percentage points larger than those of the employed; and when endogeneity is additionally accounted for, the unemployment effect on default rates declines to 3 percentage points. Moreover, we find that more granular metrics for unemployment entail lower comparable effects of unemployment on default rates. That is, the comparable effect of individual unemployment on mortgage defaults is rather lower than the effect of state or county unemployment rates. This finding suggests that local metrics of unemployment, rather than attenuating possibly large individual unemployment effects on defaults, indeed contain more information than the aggregation of these individual effects.

Suggested Citation

  • Kevin Bazer & Sílvio Rendon, 2021. "Individual and Local Effects of Unemployment on Mortgage Defaults," Working Papers 21-39, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:93424
    DOI: 10.21799/frbp.wp.2021.39
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    References listed on IDEAS

    as
    1. Paul S. Calem & Robert F. Sarama, 2017. "Why Mortgage Borrowers Persevere: An Explanation of First and Second Lien Performance Mismatch," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(1), pages 28-74, February.
    2. Haughwout, Andrew & Peach, Richard & Tracy, Joseph, 2008. "Juvenile delinquent mortgages: Bad credit or bad economy?," Journal of Urban Economics, Elsevier, vol. 64(2), pages 246-257, September.
    3. Patrick Bajari & Chenghuan Sean Chu & Minjung Park, 2008. "An Empirical Model of Subprime Mortgage Default From 2000 to 2007," NBER Working Papers 14625, National Bureau of Economic Research, Inc.
    4. Daniel H. Cooper & Karen E. Dynan & Hannah Rhodenhiser, 2019. "Measuring household wealth in the Panel Study of Income Dynamics: the role of retirement assets," Working Papers 19-6, Federal Reserve Bank of Boston.
    5. Joanne W. Hsu & David A. Matsa & Brian T. Melzer, 2018. "Unemployment Insurance as a Housing Market Stabilizer," American Economic Review, American Economic Association, vol. 108(1), pages 49-81, January.
    6. Eric Doviak & Sean MacDonald, 2012. "Who Defaults on their Home Mortgage?," New York Economic Review, New York State Economics Association (NYSEA), vol. 43(1), pages 75-98.
    7. Gyourko, Joseph & Tracy, Joseph, 2014. "Reconciling theory and empirics on the role of unemployment in mortgage default," Journal of Urban Economics, Elsevier, vol. 80(C), pages 87-96.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    mortgage debt; mortgage defaults; unemployment; consumer credit;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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