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

Differential Impacts of Structural and Cyclical Unemployment on Mortgage Default and Prepayment The Great Recession (the fourth quarter of 2007 through the second quarter of 2009) has been characterized by high rates of foreclosures and unemployment. Using a sample of community reinvestment loans, we examine the impact of structural unemployment and cyclical unemployment on mortgage terminations (default and prepayment). We find that mortgage default and prepayment are more sensitive to changes in the structural component of the local unemployment rate than in the cyclical component. In addition, depending on whether structural unemployment rates are high or low, borrowers and lenders react differently to the incentives to terminate a loan. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

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

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Publisher
Springer Journals
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-014-9461-4
Publisher site
See Article on Publisher Site

Abstract

The Great Recession (the fourth quarter of 2007 through the second quarter of 2009) has been characterized by high rates of foreclosures and unemployment. Using a sample of community reinvestment loans, we examine the impact of structural unemployment and cyclical unemployment on mortgage terminations (default and prepayment). We find that mortgage default and prepayment are more sensitive to changes in the structural component of the local unemployment rate than in the cyclical component. In addition, depending on whether structural unemployment rates are high or low, borrowers and lenders react differently to the incentives to terminate a loan.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Apr 3, 2014

References

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