Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default

Kristopher Gerardi, Kyle Herkenhoff, Lee Ohanian and Paul Willen

No 2013-04, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper exploits matched data from the PSID on borrower mortgages with income and demographic data to quantify the relative importance of negative equity, versus lack of ability to pay, as affecting default between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. We use instrumental variables to quantify the impact of ability to pay, including job loss and disability, versus negative equity. Changes in ability to pay have the largest estimated effects. Job loss has an equivalent effect on default likelihood as a 35 percent decline in equity.

Keywords: unemployment; mortgage; default; strategic default; negative equity; liquidity constraints (search for similar items in EconPapers)
JEL-codes: D12 D14 E24 E30 E51 E60 G21 G33 L85 R31 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-08-01
New Economics Papers: this item is included in nep-spo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Related works:
Journal Article: Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default (2018)
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)
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