Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default
Kyle Herkenhoff (),
Lee Ohanian () and
Paul S. Willen
Review of Financial Studies, 2018, vol. 31, issue 3, 1098-1131
This paper uses new data from the PSID to quantify the relative importance of negative equity versus ability to pay, in driving mortgage defaults between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. Changes in ability to pay have large estimated effects. Job loss has an equivalent effect on the propensity to default as a 35% decline in equity. Strategic motives are also found to be quantitatively important, as we estimate more than 38% of households in default could make their mortgage payments without reducing consumption. Received September 29, 2015; editorial decision June 2, 2017 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University PressWeb site next to the link to the final published paper online.
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Working Paper: Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default (2017)
Working Paper: Can't pay or won't pay?: unemployment, negative equity, and strategic default (2015)
Working Paper: Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:31:y:2018:i:3:p:1098-1131.
Ordering information: This journal article can be ordered from
Access Statistics for this article
Review of Financial Studies is currently edited by Maureen O'Hara
More articles in Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().