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

Posted: 19 Sep 2016

See all articles by Roberto Quercia

Roberto Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning

Anthony Pennington-Cross

Marquette University - Dept. of Finance

Chao Yue Tian

SWUFE

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2016

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 components 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.

Keywords: Structural and cyclical unemployment, Mortgage performance

JEL Classification: D12, G21, R22

Suggested Citation

Quercia, Roberto G. and Pennington-Cross, Anthony N. and Tian, Chao Yue, Differential Impacts of Structural and Cyclical Unemployment on Mortgage Default and Prepayment (September 15, 2016). Journal of Real Estate Finance and Economics, Vol. 53, No. 3, 2016. Available at SSRN: https://ssrn.com/abstract=2839322

Roberto G. Quercia

University of North Carolina (UNC) at Chapel Hill - Department of City and Regional Planning ( email )

New East Building
Chapel Hill, NC 27599-3140
United States
919-962-4766 (Phone)
Not available (Fax)

Anthony N. Pennington-Cross

Marquette University - Dept. of Finance ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

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