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Income Volatility and Residential Mortgage Delinquency: Evidence from 12 EU Countries

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Author Info
Diaz-Serrano, Luis () (National University of Ireland Maynooth, CREB Barcelona and IZA Bonn)
Abstract

We investigate the socio-economic determinants of mortgage delinquency in 12 EU countries and observe that income volatility significantly increases the mortgage delinquency risk. This pattern even holds for borrowers with higher-income profiles if volatility in income is high enough. From this result we can draw the following conclusions: i) mortgage protection insurance policies might be failing to cover those borrowers most in need; ii) the existence of credit market imperfections, and; iii) the inability for a number of borrowers most at income risk to accumulate precautionary savings in order to meet mortgage payments when shocks in income arise.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1396.

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Length: 42 pages
Date of creation: Nov 2004
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Handle: RePEc:iza:izadps:dp1396

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Related research
Keywords: income volatility; mortgage delinquency; mortgage insurance; homeownership; payment-to-income ratio; credit market imperfections; precautionary savings;

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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
R0 - Urban, Rural, and Regional Economics - - General
J0 - Labor and Demographic Economics - - General

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  1. Hartog, Joop & Vijverberg, Wim P. M., 2002. "Do Wages Really Compensate for Risk Aversion and Skewness Affection?," IZA Discussion Papers 426, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Joop Hartog & Erik Plug & Luis Diaz Serrano & Jose Vieira, 2003. "Risk compensation in wages – a replication," Empirical Economics, Springer, vol. 28(3), pages 639-647, July. [Downloadable!] (restricted)
  4. Gwilym Pryce & Margaret Keoghan, 2002. "Unemployment insurance for mortgage borrowers: is it viable and does it cover those most in need?," European Journal of Housing Policy, Taylor and Francis Journals, vol. 2(1), pages 87-114, April. [Downloadable!] (restricted)
  5. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November. [Downloadable!] (restricted)
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  6. Pryce, Gwilym, 2002. "Theory and Estimation of the Mortgage Payment Protection Insurance Decision," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 216-34, May. [Downloadable!] (restricted)
  7. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December. [Downloadable!] (restricted)
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  8. Kau, James B. & Keenan, Donald C., 1999. "Patterns of rational default," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 765-785, November. [Downloadable!] (restricted)
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  10. Arrondel, Luc, 2002. "Risk management and wealth accumulation behavior in France," Economics Letters, Elsevier, vol. 74(2), pages 187-194, January. [Downloadable!] (restricted)
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  11. Peter Chinloy, 1995. "Privatized Default Risk and Real Estate Recessions: The U.K. Mortgage Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(4), pages 401-420. [Downloadable!] (restricted)
  12. Robst, John & Deitz, Richard & McGoldrick, KimMarie, 1999. "Income variability, uncertainty and housing tenure choice1," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 219-229, March. [Downloadable!] (restricted)
  13. Piet M.A. Eichholtz, 1995. "Regional Economic Stability and Mortgage Default Risk in the Netherlands," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(4), pages 421-439. [Downloadable!] (restricted)
  14. Stephen L Ross, 2000. "Mortgage Lending, Sample Selection and Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(4), pages 581-621. [Downloadable!] (restricted)
  15. Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Kerry D. Vandell & Thomas Thibodeau, 1985. "Estimation of Mortgage Defaults Using Disaggregate Loan History Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 292-316. [Downloadable!] (restricted)
  17. Deng, Yongheng & Quigley, John M. & Van Order, Robert & Mac, Freddie, 1996. "Mortgage default and low downpayment loans: The costs of public subsidy," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 263-285, June. [Downloadable!] (restricted)
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