Why Do Borrowers Default on Mortgages? A New Method for Causal Attribution

Ganong, Peter; Noel, Pascal

doi:10.2139/ssrn.3661077

Cited by 13 publications

(26 citation statements)

References 65 publications

(112 reference statements)

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“…In column 2 for the 2‐year move, the coefficients are 3.8 percentage points versus 8.6 percentage points, while in column 4 (for the 4‐year move) the corresponding coefficients are 4.1 and 11.5 percentage points. This further confirms that adverse effects of high PTI on a family's tendency to move out of their home are amplified if the family is also underwater, consistent with double‐trigger views of mortgage default (e.g., Bhutta et al., 2010; Elul et al., 2010; Foote et al., 2008; Ganong & Noel, 2020b). As suggested earlier, this sort of interaction effect could arise if high CLTV prevents financially stressed families from refinancing into a lower monthly payment loan, forcing them to move.…”

Section: Mobility Regressionssupporting

confidence: 71%

“…amplified if the family is also underwater, consistent with double-trigger views of mortgage default (e.g., Bhutta et al, 2010;Elul et al, 2010;Foote et al, 2008;Ganong & Noel, 2020b). As suggested earlier, this sort of interaction effect could arise if high CLTV prevents financially stressed families from refinancing into a lower monthly payment loan, forcing them to move.…”

Section: Interactions Between High Pti and Cltvsupporting

confidence: 55%

“…Our key contribution here is to highlight the role of mortgage payment burden on home investment which has received limited attention in previous work. A related finding by Ganong and Noel (2020b) is that consumption is reduced by high payment burdens. Our estimates on home maintenance are analogous.…”

Section: Ta B L Ementioning

confidence: 99%

“…Instead, they estimate that the median homeowner needs to have a current loan-to-value ratio (CLTV) in excess of 170% before default occurs, far higher than simple put-option models would predict. 2 The large number of underwater families that resist default reinforces double-trigger views of when a default occurs: homeowners must have negative net equity and an unwillingness or inability to make their mortgage payments (see Bricker & Bucks, 2016;Elul et al, 2010;Foote et al, 2008;and Ganong & Noel, 2020b for related discussion). This latter condition necessitates a move out of the home, at which point the family must either default or draw on sources of wealth beyond home equity to pay off the outstanding balance on the mortgage.…”

Section: Introductionmentioning

confidence: 99%

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Forced moves and home maintenance: The amplifying effects of mortgage payment burden on underwater homeowners

Harding

Rosenthal

et al. 2021

Real Estate Economics

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Although well‐known that high current loan‐to‐value ratio (CLTV) is necessary for mortgage default, the amplifying effect of high payment‐to‐income ratios (PTI) that can force families to move has received limited attention. Using the 1985–2013 American Housing Survey panel, we show that high CLTV by itself has little effect on mobility, but high PTI prompts families to move and especially so when CLTV is high. Evidence also indicates that high PTI and CLTV discourage home maintenance. Our estimates suggest that loan modifications that lower PTI will likely be more effective at helping underwater families to remain in their homes and avoid mortgage default as compared to policies that lower CLTV.

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Section: Mobility Regressionssupporting

confidence: 71%

Section: Interactions Between High Pti and Cltvsupporting

confidence: 55%

Section: Ta B L Ementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Forced moves and home maintenance: The amplifying effects of mortgage payment burden on underwater homeowners

Harding

Rosenthal

et al. 2021

Real Estate Economics

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“…Estimates of prevalence are also of interest in the literature on "causal attribution," which aims to measure "how much" of an outcome is attributable to a binary treatment. For example, the estimand of interest in Ganong and Noel (2020), which aims to measure the proportion of mortgage defaults that are caused exclusively by negative equity -as opposed to adverse life events -in the years during and following the great recession, takes the form of prevalence. Pearl (1999), Rosenbaum (2001), andYamamoto (2012) provide further discussion of identification and inference in analyses of causal attribution, as well as a survey several applications.…”

Section: Application To Additional Problemsmentioning

confidence: 99%

Confidence Intervals for Seroprevalence

DiCiccio¹,

Ritzwoller²,

Romano³

et al. 2021

Preprint

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This paper concerns the construction of confidence intervals in standard seroprevalence surveys. In particular, we discuss methods for constructing confidence intervals for the proportion of individuals in a population infected with a disease using a sample of antibody test results and measurements of the test's false positive and false negative rates. We begin by documenting erratic behavior in the coverage probabilities of standard Wald and percentile bootstrap intervals when applied to this problem. We then consider two alternative sets of intervals constructed with test inversion. The first set of intervals are approximate, using either asymptotic or bootstrap approximation to the finite-sample distribution of a chosen test statistic. We consider several choices of test statistic, including maximum likelihood estimators and generalized likelihood ratio statistics. We show with simulation that, at empirically relevant parameter values and sample sizes, the coverage probabilities for these intervals are close to their nominal level and are approximately equi-tailed. The second set of intervals are shown to contain the true parameter value with probability at least equal to the nominal level, but can be conservative in finite samples. To conclude, we outline the application of the methods that we consider to several related problems, and we provide a set of practical recommendations.

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Systemic Financial Risk Arising from Residential Flood Losses

Thomson

Zeff

Kleiman

et al. 2022

Preprint

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Flood impacts to residential properties threaten the resilience of communities and the institutions that support them. These events can cause negative impacts to property-level balance sheets through uninsured damage and property value decreases, which in turn can increase the likelihood of mortgage default and property abandonment. To date, there have been limited attempts to quantify the magnitude and distribution of additional financial consequences that could arise from these processes following flood events. In this work, property-scale financial data, including property sales, mortgage originations, and insurance claims, are used within an analytical framework to quantify flood-related uninsured damages and property value decrease in order to estimate the financial risk that property owners, mortgage lenders, and local governments are exposed to via recovery decisions (i.e., default and/or abandonment). This framework is applied to residential properties in eastern North Carolina following Hurricane Florence (2018). Within the study area, Hurricane Florence generated $366M in observed insured losses and we estimate an additional $1.77B in balance sheet losses (i.e., uninsured damage and property value decrease). In addition, property owners, mortgage lenders, and local governments were exposed to an estimated $562M of risk from the increased likelihood of mortgage default and property abandonment. Areas with lower pre-event property values and lower rates of insurance purchase experienced significantly higher risk of mortgage default and abandonment. The method described provides more highly resolved estimates of how floods can drive systemic financial risk, information that can be useful in developing improved flood resilience strategies.

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Why Do Borrowers Default on Mortgages? A New Method for Causal Attribution

Cited by 13 publications

References 65 publications

Forced moves and home maintenance: The amplifying effects of mortgage payment burden on underwater homeowners

Forced moves and home maintenance: The amplifying effects of mortgage payment burden on underwater homeowners

Confidence Intervals for Seroprevalence

Systemic Financial Risk Arising from Residential Flood Losses

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