Foreclosure delay and U.S. unemployment

Kyle Herkenhoff and Lee Ohanian

No 2012-017, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of \"informal\" unemployment insurance during the 2007 recession and the subsequent recovery. In a dynamic model, we capture this behavior by treating both delinquency and foreclosure not as one period events, but rather as protracted and potentially reversible episodes that influence job search behavior and wage acceptance decisions. With a relatively conservative parameterization, we find that the observed foreclosure delays increase the unemployment rate by an additional 1/3%-1/2% and increase the stock of delinquent loans by 8%-12%. When interpreted as an implicit line of credit, those that use their mortgage as ?informal\" unemployment insurance borrow at a real rate of at least 18%.>

Keywords: Foreclosure; Unemployment (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-dge, nep-lab and nep-ure
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Citations: View citations in EconPapers (27)

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