Unemployment, negative equity, and strategic default

Arbeitspapier

Using new household-level data, we quantitatively assess the roles that job loss, negative equity, and wealth (including unsecured debt, liquid assets, and illiquid assets) play in default decisions. In sharp contrast to prior studies that proxy for individual unemployment status using regional unemployment rates, we find that individual unemployment is the strongest predictor of default. We find that individual unemployment increases the probability of default by 5 - 13 percentage points, ceteris paribus, compared with the sample average default rate of 3.9 percent. We also find that only 13.9 percent of defaulters have both negative equity and enough liquid or illiquid assets to make one month's mortgage payment. This finding suggests that "ruthless" or "strategic" default during the 2007 - 09 recession was relatively rare and that policies designed to promote employment, such as payroll tax cuts, are most likely to stem defaults in the long run rather than policies that temporarily modify mortgages.

Objekt anzeigen

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2013-4

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; Consumer Economics: Empirical Analysis ; Household Saving; Personal Finance ; Money Supply; Credit; Money Multipliers ; Bankruptcy; Liquidation ; Real Estate Services ; Housing Supply and Markets
• Thema: unemployment ; mortgage ; default ; strategic default ; negative equity ; liquidity constraint

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Gerardi, Kristopher ; Herkenhoff, Kyle F. ; Ohanian, Lee E. ; Willen, Paul S.
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of Atlanta
• (wo): Atlanta, GA
• (wann): 2013

Weitere Informationen

• Handle: http://hdl.handle.net/10419/101017