Unemployment as an Adverse Trigger Event for Mortgage Default

Publication Date

January 2016

Author(s)

Chao Yue Tian, Roberto G. Quercia, and Sarah F. Riley

Client/Funder

Ford Foundation

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This analysis finds that household unemployment and the local unemployment rate are important predictors of mortgage default.

There is limited evidence of the role of household-level adverse trigger events in driving mortgage default, and the evidence based on proxies, such as the unemployment rate, is inconsistent. Using a survey of low- and moderate-income homeowners with community reinvestment mortgages, we study how a reported household unemployment experience, as a measure of an adverse trigger event, affects mortgage default. We find that both household unemployment and the local unemployment rate are important predictors of mortgage default. We also find that precautionary savings and the duration of unemployment benefits can moderate mortgage default significantly.