Stress Testing Household Debt

34 Pages Posted: 19 Jan 2021

See all articles by Neil Bhutta

Neil Bhutta

Board of Governors of the Federal Reserve System

Jesse Bricker

Board of Governors of the Federal Reserve System

Lisa J. Dettling

Board of Governors of the Federal Reserve System

Jimmy Kelliher

Board of Governors of the Federal Reserve System

Steven Laufer

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 2018

Abstract

We estimate a county-level model of household delinquency and use it to conduct “stress tests” of household debt. Applying house price and unemployment rate shocks from Comprehensive Capital Analysis Review stress tests, we find that forecasted delinquency rates for the 2017 Q4 stock of debt are moderately lower than for the stock of debt before the 2007–9 financial crisis, given the same set of shocks. We trace the decline in expected delinquency rates under stress to an improvement in debt-to-income ratios and an increase in the share of debt held by borrowers with relatively high credit scores. We also consider several alternative scenarios, including one where the size of house price shocks depends on current housing valuations. Under this scenario, we forecast a much lower delinquency rate than occurred during the crisis, as housing valuation measures were much more benign in 2017 than they were precrisis.

Keywords: loan default, stress test, household debt, delinquency, financial stability

Suggested Citation

Bhutta, Neil and Bricker, Jesse and Dettling, Lisa J. and Kelliher, Jimmy and Laufer, Steven, Stress Testing Household Debt (December 11, 2018). Journal of Credit Risk, Vol. 16, No. 3, 2020, Available at SSRN: https://ssrn.com/abstract=3769176

Neil Bhutta (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jesse Bricker

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Lisa J. Dettling

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jimmy Kelliher

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Steven Laufer

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-475-6608 (Phone)
202-728-5889 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
100
PlumX Metrics