Individual and Local Effects of Unemployment on Mortgage Defaults

Kevin Bazer and Silvio Rendon

No 21-39, Working Papers from Federal Reserve Bank of Philadelphia

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.

Keywords: mortgage debt; mortgage defaults; unemployment; consumer credit (search for similar items in EconPapers)
JEL-codes: G21 J64 R31 (search for similar items in EconPapers)
Pages: 29
Date: 2021-12-01
New Economics Papers: this item is included in nep-ban, nep-lab and nep-ure
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Citations: View citations in EconPapers (1)

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DOI: 10.21799/frbp.wp.2021.39

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