Differential Impacts of Structural and Cyclical Unemployment on Mortgage Default and Prepayment
56 Pages Posted: 31 May 2012 Last revised: 2 Mar 2015
Date Written: May 1, 2012
The Great Recession (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 or long term unemployment and cyclical or short term unemployment on mortgage terminations (default and prepayment). We 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.
Keywords: Structural and Cyclical Unemployment, Mortgage Default and Prepayment
JEL Classification: D12, G21, R22
Suggested Citation: Suggested Citation