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Mortgage Default And Prepayment Risks Among Moderate- And Low-Income Households, Roberto Quercia, Anthony Pennington-Cross, Chao Tian
Mortgage Default And Prepayment Risks Among Moderate- And Low-Income Households, Roberto Quercia, Anthony Pennington-Cross, Chao Tian
Anthony Pennington-Cross
Using a unique sample of community reinvestment loans, we study the propensity of very low-income households to terminate a mortgage and compare it to the outcomes for low-income and moderate-income households. The results indicate that, even within moderate- and low-income segments, lower or very low income is associated with higher default and lower prepayment probabilities. In addition, depending on how low the borrower's income is, classic determinants of loan termination such as credit scores, the amount of equity in the home and local labor market conditions can have different impacts on default and prepayment probabilities.
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.