Housing market analysts often explain mortgage defaults as a consequence of life events such as divorce, illness, or job loss. No doubt, such events figure importantly in a borrower’s ability to repay a mortgage. However, except for unemployment, which varies with the business cycle, life events occur with unfortunate regularity. By contrast, mortgage default rates vary substantially over time. It is clear then that life events lead to defaults when they occur in combination with some other factor. It seems most likely that this other factor is a change in house prices. Default and foreclosure are costly for borrowers. They would rather avoid these expenses by selling their houses and prepaying their mortgages instead of defaulting. They can and will do so when house prices are increasing or flat. The default rate increases in periods when house prices have fallen, making mortgage prepayment through resale or refinancing difficult.
Underwater Mortgages
Most Popular Articles
Latest Articles
Indiana senator explains his inquiries into reverse mortgages
Sen. Mike Braun offered insights into his recent letter to Ginnie Mae and the potential need for more scrutiny of the HECM and HMBS programs.