Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default

Kristopher Gerardi, Kyle Herkenhoff, Lee Ohanian and Paul Willen

No 21630, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper exploits matched data from the PSID on borrower mortgages with income and demographic data to quantify the relative importance of negative equity, versus lack of ability to pay, as affecting default between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. We use instrumental variables to quantify the impact of ability to pay, including job loss and disability, versus negative equity. Changes in ability to pay have the largest estimated effects. Job loss has an equivalent effect on default likelihood as a 35 percent decline in equity.

JEL-codes: G21 G33 R3 R51 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-rmg and nep-ure
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Citations: View citations in EconPapers (23)

Published as Kristopher Gerardi & Kyle F. Herkenhoff & Lee E. Ohanian & Paul S. Willen, 2018. "Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default," The Review of Financial Studies, vol 31(3), pages 1098-1131.

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Related works:
Journal Article: Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default (2018)
Working Paper: Can't pay or won't pay?: unemployment, negative equity, and strategic default (2015)
Working Paper: Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default (2013)
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