Forced moves and home maintenance: The amplifying effects of mortgage payment burden on underwater homeowners

John P. Harding, Jing Li, Stuart Rosenthal () and Xirui Zhang

Real Estate Economics, 2022, vol. 50, issue 2, 498-533

Abstract: Although well‐known that high current loan‐to‐value ratio (CLTV) is necessary for mortgage default, the amplifying effect of high payment‐to‐income ratios (PTI) that can force families to move has received limited attention. Using the 1985–2013 American Housing Survey panel, we show that high CLTV by itself has little effect on mobility, but high PTI prompts families to move and especially so when CLTV is high. Evidence also indicates that high PTI and CLTV discourage home maintenance. Our estimates suggest that loan modifications that lower PTI will likely be more effective at helping underwater families to remain in their homes and avoid mortgage default as compared to policies that lower CLTV.

Date: 2022
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https://doi.org/10.1111/1540-6229.12361

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