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Differential Impacts Of Structural And Cyclical Unemployment On Mortgage Default And Prepayment, Roberto Quercia, Anthony Pennington-Cross, Chao Tian
Differential Impacts Of Structural And Cyclical Unemployment On Mortgage Default And Prepayment, Roberto Quercia, Anthony Pennington-Cross, Chao Tian
Anthony Pennington-Cross
The Great Recession (the fourth quarter of 2007 through the second quarter of 2009) has been characterized by high rates of foreclosures and unemployment. Using a sample of community reinvestment loans, we examine the impact of structural unemployment and cyclical unemployment on mortgage terminations (default and prepayment). We find that mortgage default and prepayment are more sensitive to changes in the structural component of the local unemployment rate than in the cyclical component. In addition, depending on whether structural unemployment rates are high or low, borrowers and lenders react differently to the incentives to terminate a loan.