Equity and Nonequity Determinants of FHA Single-Family Mortgage Foreclosures in the 1980s

31 Pages Posted: 14 Aug 2007 Last revised: 19 Feb 2021

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

William Schultz

affiliation not provided to SSRN

Date Written: August 1993

Abstract

We examine foreclosures on FHA single family mortgages insured during 1975-87. The importance of the market value of borrower equity, and of the dispersion of national house prices support much earlier work emphasizing the key role of negative equity in triggering default. The lower the "mean" market value of equity is, and the greater dispersion is, the more borrowers will be likely to have negative equity. The unemployment rate and the book value of borrower equity also are significant determinants of default. Unemployment is one event that can force borrowers to move. The decision to move increases the likelihood of default, because moving costs no longer deter default, and the costs of selling the house reduce the effective equity in the house. The book value of equity also is relevant to this decision, because it is what sellers will receive if they move without defaulting. Both of these variables are significant determinants of default, but the employment impact rises as book equity declines (with large book equity, unemployment should not matter, because selling the house is preferred to default).

Suggested Citation

Hendershott, Patric H. and Schultz, William, Equity and Nonequity Determinants of FHA Single-Family Mortgage Foreclosures in the 1980s (August 1993). NBER Working Paper No. w4440, Available at SSRN: https://ssrn.com/abstract=480242

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

William Schultz

affiliation not provided to SSRN

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

Paper statistics

Downloads
8
Abstract Views
424
PlumX Metrics