How Unsecured Credit Policies Influence Mortgage and Unsecured Loan Defaults

Jiseob Kim

Journal of Money, Credit and Banking, 2020, vol. 52, issue 5, 1271-1304

Abstract: Before the global financial crisis, the proportion of households defaulting on the mortgage while remaining current on the unsecured loan was almost the same as the proportion of households current on the mortgage but defaulting on the unsecured loan. After the crisis, the former ratio became higher than the latter. By using a heterogeneous agent model with the mortgage and the unsecured loan, I examine how the order of defaults changed before and after the crisis. I then analyze the impacts of unsecured credit policies on households' mortgage and unsecured loan defaults. My quantitative exercise shows that both default rates can decrease as the cost for unsecured loan defaults increases.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:52:y:2020:i:5:p:1271-1304

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