Skip to main content

Differential Impacts of Structural and Cyclical Unemployment on Mortgage Default and Prepayment

 

By

Publication Date

March 2012

Author(s)

Anthony Pennington-Cross, Chao Yue Tian, Roberto G. Quercia
Read the Publication

Long-term unemployment has greater impact on affordable home loan default than short-term. They suggest policymakers take care to account for this differential impact determining which regions and households to target with foreclosure-prevention programs.

The Great Recession (fourth quarter 2007 through second quarter 2009) has been characterized by high rates of foreclosures and unemployment.

Researchers examine a sample of community reinvestment loans to examine the impact of structural, or long-term, unemployment and cyclical, or short-term, unemployment on mortgage terminations (default and prepayment).

They find that mortgage default and prepayment are more sensitive to structural unemployment than cyclical unemployment. In addition, depending on whether structural unemployment is high or low, borrowers and lenders react differently to the incentives to terminate a loan.

Topics(s): Affordable Homeownership, Community Advantage Program, Default, Bankruptcy, & Foreclosure, Mortgage Finance, Other